Is AGL about to reclaim its blue-chip ASX dividend share status?

Will it soon be dividends galore.

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Former ASX dividend share AGL Energy Limited (ASX: AGL) used to be considered a solid option for passive income. Can the ASX energy share reclaim its dividend blue-chip status?

The company suffered from lower energy prices and disruption to its energy generation. But, now things are looking up with profit expected to double and possibly more.

How good are the AGL dividends going to be?

Dividends are not guaranteed, they are decided by the board of directors and paid from profit generated.

A sensible business will cut the dividend if the profit is falling so that it's not draining the balance sheet of its financial assets. That's why the AGL dividend has fallen from $1.19 per share in FY19 to 31 cents per share in FY23.

The FY19 dividend is the past, back when profit, the AGL share price and the payouts were all much bigger. We should forget about that era of dividends.

Compared to FY23, the ASX dividend share's dividends are expected to significantly increase.

On Commsec, the current projection is that the AGL annual dividend per share will soar 71% to 53 cents. At the current AGL share price, that translates into a dividend yield of 5.1%. If the dividend yield were to be fully franked, it'd be a grossed-up dividend yield of 7.3%. At the moment, AGL's dividends are not franked.

The current suggestion is that the AGL dividend per share will grow by another 17% to 62 cents per share in FY25. At the current AGL share price, this would be an FY25 dividend yield of 6%, or 8.5% grossed-up if that dividend is fully franked.

Will this be enough to be a blue-chip ASX dividend share?

I don't think a couple of years of growing dividends will be enough to suddenly call this ASX energy share one of the best ASX dividend shares.

However, a utility business does have the potential to deliver defensive earnings and a growing dividend, assuming energy prices aren't too volatile.

AGL can benefit from Australia's growing population, invest in (renewable) energy generation and expand its offering for households and businesses.

If it starts franking its dividend again, I think AGL shares could be an attractive source of dividends.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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