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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 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
Headquartered in Dallas, Atmos Energy (ATO) is a Utilities stock that has seen a price change of -12.92% so far this year. Currently paying a dividend of $0.57 per share, the company has a dividend yield of 2.36%. In comparison, the Utility - Gas Distribution industry's yield is 3.92%, while the S&P 500's yield is 2.41%.
Looking at dividend growth, the company's current annualized dividend of $2.30 is up 9.5% from last year. Over the last 5 years, Atmos Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.86%. 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. Atmos's current payout ratio is 52%, meaning it paid out 52% of its trailing 12-month EPS as dividend.
ATO is expecting earnings to expand this fiscal year as well. 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 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).
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Atmos Energy Corporation (ATO) : Free Stock Analysis Report
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