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

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·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.

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) is in the Utilities sector, and so far this year, shares have seen a price change of 14.15%. The natural gas utility is paying out a dividend of $0.68 per share at the moment, with a dividend yield of 2.27% compared to the Utility - Gas Distribution industry's yield of 2.61% and the S&P 500's yield of 1.47%.

In terms of dividend growth, the company's current annualized dividend of $2.72 is up 8.8% 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 8.95%. 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 51%, meaning it paid out 51% of its trailing 12-month EPS as dividend.

ATO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $5.52 per share, with earnings expected to increase 7.81% from the year ago period.

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. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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).


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