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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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
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 15.14%. The natural gas utility is currently shelling out a dividend of $0.57 per share, with a dividend yield of 2.15%. This compares to the Utility - Gas Distribution industry's yield of 2.85% and the S&P 500's yield of 1.81%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.30 is up 18.6% 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 7.37%. 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 48%. This 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 $4.66 per share, which represents a year-over-year growth rate of 7.13%.
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. 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).