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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Atmos Energy in Focus
Atmos Energy (ATO - Free Report) is headquartered in Dallas, and is in the Utilities sector. The stock has seen a price change of 12.75% since the start of the year. Currently paying a dividend of $0.52 per share, the company has a dividend yield of 2.01%. In comparison, the Utility - Gas Distribution industry's yield is 2.49%, while the S&P 500's yield is 1.95%.
Taking a look at the company's dividend growth, its 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 7.54%. 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 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ATO for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.32 per share, which represents a year-over-year growth rate of 8%.
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 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).