In February, the AGL Energy Ltd (ASX: AGL) board cut its interim dividend by 60% as the energy company released its first-half results. This prompted a short slump in the company’s shares at the time before the AGL share price rebounded and headed north again.
At Wednesday’s market close, AGL shares were trading at $8.30 apiece.
Below, we dive into the AGL dividend policy and its payout ratio.
A look at AGL’s dividend history
On 30 March, the company paid out an FY22 interim dividend of 16 cents — considerably lower than the 41 cents declared in the prior corresponding period.
Management noted the lower payout would enable AGL Australia and Accel Energy to manage capital for future growth, and maintain debt.
However, when measuring up against prior dividend payments, we need to go back to 2007 to see a lower dividend from AGL.
In addition, the last three AGL dividends paid to shareholders have been unfranked, in contrast to the previous eight years. This means those eligible for any recent dividends missed out on the tax credits.
The FY21 full-year dividend stood at 75 cents, which compares to the 98 cents recorded in the 2020 financial year.
And with FY22’s interim dividend at 16 cents, the final dividend is unlikely to match FY21’s full-year dividend.
More on AGL’s dividend payout ratio
In its H1 FY22 results, AGL delivered net cash from operating activities of $661 million, up 9% on H1 FY21. This increase was largely due to an uptick in working capital, which included a positive movement in green certificate assets and a large inflow from margin calls.
AGL said that this largely offset a reduction in earnings.
On the bottom line, underlying net profit after tax (NPAT) dropped to $194 million, down 41% from the prior comparable period.
The company had approximately $700 million in cash and undrawn debt facilities at the end of December.
The interim dividend was in line with AGL’s dividend policy to target a payout ratio of 75% of underlying profit after tax. The payout ratio is essentially the amount of a company’s earnings per share (EPS) that it pays out in dividends.
Following AGL’s upcoming demerger, the board proposes the respective dividend policies for each entity. They are as follows:
- AGL Australia: 60% to 75% of underlying NPAT
- Accel Energy: 80% to 100% of free cash flows after servicing net finance costs
AGL share price summary
In 2022, the AGL share price has continued to rise in value, gaining more than 35% for investors.
However, when factoring in the last 12 months, its shares are in the red, down almost 5%.
AGL has a trailing dividend yield of 6.02%, and a market capitalisation of roughly $5.58 billion.
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Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.
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