Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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) is in the Utilities sector, and so far this year, shares have seen a price change of 1.69%. The natural gas utility is paying out a dividend of $0.57 per share at the moment, with a dividend yield of 2.02% compared to the Utility - Gas Distribution industry's yield of 2.88% and the S&P 500's yield of 1.75%.
Looking at 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 7.86%. 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.
Earnings growth looks solid for ATO for this fiscal year. The Zacks Consensus Estimate for 2020 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. 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 must be conscious 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).
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Atmos Energy Corporation (ATO) : Free Stock Analysis Report
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