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Atmos Energy (ATO) is a Top Dividend Stock Right Now: Should You Buy?

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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 when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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

Headquartered in Dallas, Atmos Energy (ATO - Free Report) is a Utilities stock that has seen a price change of 1.96% so far this year. The natural gas utility is paying out a dividend of $0.81 per share at the moment, with a dividend yield of 2.72% compared to the Utility - Gas Distribution industry's yield of 3.58% and the S&P 500's yield of 1.58%.

Looking at dividend growth, the company's current annualized dividend of $3.22 is up 8.8% from last year. Over the last 5 years, Atmos Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.06%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Atmos's current payout ratio is 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, ATO expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $6.59 per share, with earnings expected to increase 8.03% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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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