For investors seeking dividend stocks with potential for strong returns, AGL Energy Ltd (ASX: ASX:AGL) stands out as a notable option. AGL Energy, one of Australia’s largest energy generators and retailers, is poised to offer substantial cash returns over the coming years, with an anticipated significant increase in dividend yields by 2028.
Current Dividend Performance and Outlook AGL Energy, an ASX dividend stock, has faced challenges in recent years, with its share price declining approximately 45% over the past five years. This downturn has also impacted its dividend payments, which have decreased by around 60% compared to FY19. The last two dividend payments amounted to 49 cents per share, reflecting these difficulties.
However, the outlook for AGL's dividends looks more promising moving forward. The company is set to release its FY24 earnings result on August 14, and projections suggest substantial improvements in its financial performance.
FY24 Earnings and Dividend Projections For FY24, AGL Energy is expected to generate $12.9 billion in revenue, $1.3 billion in earnings before interest and tax (EBIT), and $785 million in net profit after tax (NPAT). Earnings per share (EPS) for the year are anticipated to be $1.17. Based on these projections, the dividend for FY24 could be 58 cents per share, marking an 87% increase from the previous year. This increase would result in a dividend yield of 5.5% at the current share price.
Long-Term Dividend Growth Potential Looking further ahead, AGL Energy’s dividend prospects are expected to improve significantly by FY28. Projections indicate that the company could achieve $14.9 billion in revenue, $1.56 billion in EBIT, $887 million in NPAT, and an EPS of $1.32 by FY28. This potential growth in profitability could lead to a higher dividend payout, with estimates suggesting a rise to 82 cents per share by FY28. This would represent a 41% increase from the FY24 dividend and could result in a dividend yield of approximately 8% at the current share price. When including franking credits, this could translate to a grossed-up dividend yield of 11%.
Factors Driving Future Earnings Growth Several factors are expected to contribute to AGL Energy’s future earnings growth. Recent adjustments in wholesale electricity price outlooks, with long-term assumptions increasing to $90/MWh, reflect a slower expansion of renewable energy and transmission capacity, higher levelized cost of energy (LCOE) for new generation, and updated forecasts for thermal generation and storage utilization. Additionally, AGL Energy's investments in its energy portfolio, including hydro projects, align with Australia's transition away from coal. Despite this, coal power plants are anticipated to continue generating significant profits until their eventual shutdown.
AGL Energy presents a compelling opportunity for investors seeking robust dividend returns. With a promising outlook for dividend growth and an increasing yield projected for the coming years, AGL Energy is positioned as a strong candidate for those looking to enhance their investment portfolios with reliable income sources.