Is AGL an attractive income stock?

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Question asked 05/03/2021

Is AGL an attractive income stock?

Hi there I’m a fairly new member and am enjoying the news and insights on here. I’m retired and invest to be self funded . So naturally shares are particularly attractive at present especially if franking is included . Equally important is to preserve our capital . Recently I’ve been looking at AGL as an income share and while yields seem attractive I recall some announcement saying no franking for a few years as well as recent comments that wholesale electricity tariffs are lowest they have been for some time And the share price has dropped considerably in recent times . So .....I’m a little tentative to buy AGL but it does appeal as income generation and perhaps some share price recovery . Do you guys have any thoughts Thanks and cheers Shane

Answer

Hi Shane,
AGL has unfortunately been a vehicle of wealth destruction since 2017 and it’s a brave investor who chases this stock for its ~7% yield. There are a lot of uncertainties with AGL at the moment, and this is shown through their stated FY21 profit guidance of $560-$660m, which is a huge range plus it also includes $80-$100m in one off gains (i.e. gains that will not be repeated). Strip those out and we get a business doing $480m-$580m in profit for the year ahead, which is down from $816m in FY20.

While the stock looks ‘cheap’ on 13x FY21 expected earnings, there are a lot of risks around these earnings. My “Gut Feel” is AGL that will hold around current levels however the downtrend is entrenched and this is not one for us.

For income focused investors, predictability of earnings and therefore dividends is important. For high, fairly predictable yield outside the banks we currently like Abacus (ABP), Telstra (TLS) & Smart Group (SIQ) to name a few.

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AGL Energy (AGL)

LAST UPDATED 16/11/2020 12:27

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