AGL Energy Limited (ASX: AGL) is considered among one of the best dividend shares by some professional investors; however, it's heavily underperformed the S&P/ASX200 (INDEXASX: XJO) index over the past two years.
The reason AGL is popular with dividend investors is because selling electricity to retail customers provides a steady stream of profits, which translated into $1.17 per share in dividends franked to 80% over the last 12 months. That equals a 5.7% trailing dividend yield based on today's share price of $20.39.
One investment house that recently downgraded its view on AGL from 'buy' to 'neutral' is Goldman Sachs, who (as at 31 May 2019) placed a 12-month price target on the shares of $22.20. It's forecasting $1.17 per share in dividends though FY20–21, to suggest the forward yield should be around today's level of 5.7%.
Goldman noted that the Coalition's surprise federal election win only went so far in removing uncertainty over federal and state government energy policy and there's still a general risk that energy retailers face tougher regulation on pricing.
Goldman also flagged AGL's recent approach to internet retailer Vocus Group Ltd (ASX: VOC) as an issue to consider, and noted that Origin Energy Ltd (ASX: ORG) already offers internet services itself.
Overall, it looks like AGL could remain a solid dividend play for investors, but it remains in a competitive space that is unlikely to deliver huge capital growth upside.
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