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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 5.3% so far this year. The natural gas utility is paying out a dividend of $0.52 per share at the moment, with a dividend yield of 2.15% compared to the Utility - Gas Distribution industry's yield of 2.69% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $2.10 is up 8.2% 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 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. Atmos's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
ATO is expecting earnings to expand this fiscal year as well. 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 a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).