The ASX dividend share space can be a great place to find ideas with solid dividend yields and potentially deliver capital growth, too.
AGL Energy Ltd (ASX: AGL) is one dividend-paying stock that's projected to deliver impressive passive income growth, culminating in an impressive yield in 2028.
AGL is one of the biggest energy generators and retailers in Australia – and scale comes with its advantages.
However, AGL shareholders have suffered greatly over the past five years, with the share price down around 45%. The last two dividend payments amount to 49 cents per share, down around 60% compared to FY19.
But, the outlook looks promising for AGL's dividend payments in the next few years.
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What's next?
AGL is scheduled to release its FY24 earnings result on 14 August, so there are less than two weeks to go.
UBS projects that the ASX dividend share has generated $12.9 billion in revenue, $1.3 billion in earnings before interest and tax (EBIT), $785 million in net profit after tax (NPAT), and $1.17 in earnings per share (EPS).
In terms of the dividend, UBS suggests that the FY24 annual dividend could be 58 cents per share. This could represent an 87% increase over FY23.
With that level of payment, the AGL dividend yield would be 5.5% for FY24.
How big could the AGL dividend be in FY28?
UBS projects the dividend could grow significantly between FY24 and FY28.
According to the broker, AGL could generate $14.9 billion of revenue, $1.56 billion of EBIT, $887 million of NPAT, and $1.32 of EPS by FY28.
This growth in profitability could lead to a significantly higher dividend payout. UBS projects the dividend could rise to 82 cents per share, a 41% growth between the forecast payouts for FY24 and FY28.
If it did deliver that payout, it would result in a dividend yield of close to 8% at the current AGL share price, excluding franking credits. With franking credits attached to the dividend, it could be a grossed-up dividend yield of 11%.
What could deliver the earnings growth for the ASX dividend share?
UBS recently lifted its wholesale electricity price outlook, raising its long-term price assumption to $90MW/h (an increase of $10/MWh). This reflects "a slower build-out of renewable and transmission capacity, higher levelised cost of energy (LCOE) for new generation and an updated forecast of thermal generation and storage utilisation."
AGL is investing in its energy portfolio, including in hydro projects, which could help Australia transition away from coal in the coming years. However, coal power plants could keep making sizeable profits until they are shut down in the coming years.
AGL share price snapshot
Since the start of 2024, the AGL share price is up 9%.
