Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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
Headquartered in Dallas, Atmos Energy (ATO) is a Utilities stock that has seen a price change of 4.52% so far this year. The natural gas utility is currently shelling out a dividend of $0.74 per share, with a dividend yield of 2.53%. This compares to the Utility - Gas Distribution industry's yield of 3.46% and the S&P 500's yield of 1.72%.
Looking at dividend growth, the company's current annualized dividend of $2.96 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 9.10%. 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 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 2023 is $6.02 per share, which represents a year-over-year growth rate of 7.50%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ATO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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