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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 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 -9.31%. The natural gas utility is currently shelling out a dividend of $0.57 per share, with a dividend yield of 2.27%. This compares to the Utility - Gas Distribution industry's yield of 3.37% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $2.30 is up 9.5% from last year. In the past five-year period, Atmos Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.10%. 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 50%, meaning it paid out 50% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ATO for this fiscal year. The Zacks Consensus Estimate for 2020 is $4.70 per share, representing a year-over-year earnings growth rate of 8.05%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ATO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).