AGL Energy Limited (ASX:AGL) shares will trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, the date by which shareholders must be on the company’s books to be eligible to receive a dividend payment. The ex-dividend date is an important date to keep an eye on as any purchase of the stock on or after this date may mean a delayed settlement that will not be reflected on the record date. Accordingly, AGL Energy investors who purchase the stock on or after August 27 will not receive the dividend, which is paid on September 24.
The company’s next dividend payment will be AU$0.35 per share, following on from last year’s total dividend payout of AU$0.70 to shareholders. Last year’s total dividend payments show that AGL Energy has yielded 5.9% on the current share price of AU$11.80. Dividends make a significant contribution to investment returns for long-term holders, but only if the dividend is kept paid. So we should always check if dividend payments seem sustainable, and if the company is growing.
Check out our latest analysis for AGL Energy
Dividends are usually paid out of company profits, so if a company pays out more than it earns, there is usually a higher risk of the dividend being cut. AGL Energy paid out 58% of its profits to investors last year, a normal payout level for most companies. However, cash flows are even more important than profits when evaluating a dividend, so we need to check whether the company generated enough cash to pay the distribution. Fortunately, it only paid out 24% of its free cash flow last year.
It’s positive to see that AGL Energy’s dividend is covered by both profits and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio usually means a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio as well as analyst estimates of its future dividends.
Have earnings and dividends increased?
Companies with falling profits are riskier for dividend shareholders. If profits fall sharply enough, the company could be forced to cut its dividend. Readers will then understand why we are concerned that AGL Energy’s earnings per share have fallen by 5.2% annually over the past five years. Such a sharp decline raises doubts about the future sustainability of the dividend.
Another important way to gauge a company’s dividend prospects is to measure its historical dividend growth rate. AGL Energy has delivered an average dividend growth of 1.1% per year over the past 10 years.
The conclusion
Should investors buy or avoid AGL Energy from a dividend perspective? We’re not excited about falling earnings per share, although at least the company’s payout ratio is within reasonable bounds, meaning it may not be in imminent danger of a dividend cut. Overall, we’re not overly bearish on the stock, but there are probably better dividend investments out there.
However, if you are still interested in AGL Energy as a potential investment, you should definitely consider some of the risks associated with AGL Energy. Every company has risks, and we have found 1 warning signal for AGL Energy You should know about this.
A common mistake when investing is to buy the first interesting stock you see. Here you can find a complete list of high dividend stocks.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
