Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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
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 -0.12%. The natural gas utility is paying out a dividend of $0.52 per share at the moment, with a dividend yield of 2.27% compared to the Utility - Gas Distribution industry's yield of 2.69% and the S&P 500's yield of 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.10 is up 8.2% 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 7.29%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 2019 is $4.28 per share, which represents a year-over-year growth rate of 7%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. With that in mind, ATO is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).