After tripling its dividends, is AGL a passive income share not to be missed?

Is AGL back in my good books with its huge dividend increase?

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We're now well into ASX earnings season, and yesterday, we got a look at ASX 200 energy generator and retailer AGL Energy Limited (ASX: AGL)'s books. What they contained was a delight for passive income investors.

This half-year report, covering the six months to 31 December, was an extremely popular one for ASX 200 investors. It resulted in AGL shares taking out the crown of yesterday's top-performing ASX 200 stock. By market close, AGL was up 10.28% to $8.80 a share.

Today, AGL shares have cooled off slightly, and are currently down 1.76% to $8.64. But no one can deny it was a great day to be an AGL shareholder yesterday.

As my Fool colleague covered at the time, these results saw AGL post a whopping 358.6% rise in underlying profits after tax to $3.99 million. Although revenues fell 20.8% to $6.18 billion, underlying earnings per share (EPS) also rose by a stonking 359.7% to 59.3 cents.

The rises in revenues and profits were attributed to higher electricity prices and more stable energy markets.

In a move that will delight passive income investors, AGL, as a result, revealed an interim dividend for 2024 of 26 cents per share, unfranked.

That's a massive 225% increase over last year's interim dividend, which came to just 8 cents per share. It's also a rise over the company's final dividend of 2023, which was worth 23 cents per share.

This is obviously a huge move from this company for income investors. It takes AGL's trailing dividend yield, which is currently sitting at 3.59%, and turns it into a forward dividend yield of 5.69%. Albeit unfranked.

So should income investors jump back into AGL shares?

Are AGL shares now a buy for passive income investors?

AGL's move is a welcome one for anyone who loves a good dividend, to be sure. But I'm not tempted by AGL shares today.

Why? Well, this company's divided performance over recent years has been nothing short of dreadful. Back in 2019, AGL forked out two dividends, as it did in 2023. But back then, investors were treated to an interim dividend of 55 cents per share. That was followed by a final dividend of 64 cents per share. Both payments came partially franked at 80%.

So while yesterday's divided announcement was a step in the right direction, AGL is still nowhere near its glory days in terms of passive income.

The reason why AGL has been on struggle street since 2019 – in terms of profits, earnings and dividends – is because of uncertainty in the national electricity and gas markets which it operates within.

The electricity market in particular is still in the midst of a huge transition, as renewable energy replaces older fossil-fuelled power plants. AGL may have had a good half-year. But I'm not convinced that the messy regulations of an industry in upheaval won't continue to be a drag on this company going forward.

Remember, this is a company that has burned shareholders badly in recent years. AGL fell from $23 a share in 2019 to a low of around $5.40 in late 2021.

As such, I'm staying away for now. Warren Buffett likes to say that he chooses six-inch bars to hop over, rather than 6-foot bars. AGL looks a lot higher than six inches from where I'm standing today. As such, I would need to see a consistent return to higher dividends before I'd consider a passive income investment in AGL shares today.

Motley Fool contributor Sebastian Bowen 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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