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Atmos Energy (ATO) Could Be a Great Choice

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Atmos Energy in Focus

Based in Dallas, Atmos Energy (ATO - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -0.09%. Currently paying a dividend of $0.81 per share, the company has a dividend yield of 2.78%. In comparison, the Utility - Gas Distribution industry's yield is 3.6%, while the S&P 500's yield is 1.61%.

In terms of dividend growth, the company's current annualized dividend of $3.22 is up 8.8% from last year. Atmos Energy has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.96%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Atmos's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ATO for this fiscal year. The Zacks Consensus Estimate for 2024 is $6.56 per share, representing a year-over-year earnings growth rate of 7.54%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ATO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


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