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This is Why Atmos Energy (ATO) is a Great Dividend Stock

Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does Atmos Energy (ATO) have what it takes? Let's...

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This story originally appeared on Zacks

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.

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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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

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 1.75%. The natural gas utility is currently shelling out a dividend of $0.68 per share, with a dividend yield of 2.55%. This compares to the Utility - Gas Distribution industry's yield of 2.83% and the S&P 500's yield of 1.33%.

In terms of dividend growth, the company's current annualized dividend of $2.72 is up 8.8% from last year. In the past five-year period, Atmos Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.75%. 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 2022 is $5.47 per share, with earnings expected to increase 6.84% 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. 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).



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