AGL is buying back 5% of its shares as it increases dividend payouts

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AGL Energy announced a share buy back of up to 5% of its issued capital at a market value of $596 million.

Australia’s largest privately-owned electricity generator also has a new dividend policy, targeting a payout ratio of 75% of underlying profit and a minimum franking level of 80%.

This replaces the previous progressive policy which delivered a payout ratio of 60% to 65% over the past five years.

The on-market buy-back is for 33,735,619 shares with a market value of $596 million based on AGL’s closing share price yesterday of $17.68.

Chairman Jerry Maycock says the moves reflect the strength of AGL’s liquidity position and the highly cash-generative nature of its business.

“Although the board is mindful that some shareholders prefer fully franked dividends, we believe it is more appropriate to provide a higher payout ratio with a minimum franking level of 80% than to allow a commitment to full franking to place an excessive constraint on dividend growth,” he says.

At the company’s annual general meeting, AGL also released earnings guidance for the 2017 financial year.

AGL expects underlying profit to be between $720 million and $800 million, up from to $701 million in 2016.

In July, AGL Energy issued an earnings warning, saying it expects the contribution from its gas portfolio to be at least $100 million lower in the 2017 financial year than in 2016.

Today AGL says the latest guidance is despite challenges including unseasonably mild weather in July/August and the anticipated reduction in gas portfolio earnings.

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