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Why Atmos Energy (ATO) is a Top Dividend Stock for Your Portfolio

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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. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 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 -0.02%. Currently paying a dividend of $1.36 per share, the company has a dividend yield of 2.6%. In comparison, the Utility - Gas Distribution industry's yield is 3.02%, while the S&P 500's yield is 1.47%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.72 is up 8.8% 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 8.75%. 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 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ATO for this fiscal year. 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 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. 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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