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Why Atmos Energy (ATO) is a Great Dividend Stock Right Now

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Zacks Equity Research
·3 min read
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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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) is headquartered in Dallas, and is in the Utilities sector. The stock has seen a price change of 3.58% since the start of the year. The natural gas utility is currently shelling out a dividend of $0.63 per share, with a dividend yield of 2.53%. This compares to the Utility - Gas Distribution industry's yield of 2.91% and the S&P 500's yield of 1.35%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.50 is up 8.7% 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 8.32%. 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%. This means 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 2021 is $5.03 per share, representing a year-over-year earnings growth rate of 6.57%.

Bottom Line

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.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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