All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 12.93% since the start of the year. Currently paying a dividend of $0.87 per share, the company has a dividend yield of 2.21%. In comparison, the Utility - Gas Distribution industry's yield is 3.56%, while the S&P 500's yield is 1.6%.
Looking at dividend growth, the company's current annualized dividend of $3.48 is up 8.1% 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 8.92%. 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 2025 is $7.22 per share, with earnings expected to increase 5.71% from the year ago period.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 have to be mindful 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Atmos Energy Corporation (ATO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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