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Why Atmos Energy (ATO) is a Top Dividend Stock for Your Portfolio

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Atmos Energy in Focus

Headquartered in Dallas, Atmos Energy (ATO - Free Report) is a Utilities stock that has seen a price change of 1.1% so far this year. The natural gas utility is currently shelling out a dividend of $0.81 per share, with a dividend yield of 2.75%. This compares to the Utility - Gas Distribution industry's yield of 3.5% and the S&P 500's yield of 1.58%.

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 9.06%. 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. Right now, Atmos's payout ratio is 48%, which means it paid out 48% 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 $6.65 per share, with earnings expected to increase 9.02% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that ATO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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