Whether through stocks, bonds, ETFs, or other types of securities, all investors want to see strong returns on their portfolios. However, when you are an income investor, your primary focus is generating stable cash flow from each liquid investment.
While cash flow can come from bond interest or interest from other types of investments, income investors focus more on dividends. Dividends are a distribution of earnings that a company pays to shareholders; people often think of it through the dividend yield, which measures dividends as a percentage of the current stock price. Many academic studies show that dividends account for a large portion of long-term returns, with dividends contributing more than one-third of total returns in many cases.
Atmos Energy (ATO), a Dallas-based company that belongs to the Utilities industry, has gained 19.77% so far this year. The natural gas utility company currently pays a dividend of $1.00 per share, giving it a dividend yield of 2.4%, compared with the Utilities – Gas Distribution industry’s dividend yield of 2.91% and the S&P 500’s dividend yield of 1.41%.
Looking at dividend growth, the company’s current annualized dividend is $4.00, up 14.9% from last year. Over the past five years, Atmos Energy’s dividends have increased fivefold year-over-year, with an average annual increase of 8.75%. Looking ahead, future dividend growth will depend on earnings growth and the payout ratio, which is the proportion of annual earnings per share a company pays out as dividends. Atmos currently has a payout ratio of 46%, which means it paid out 46% of its trailing twelve months earnings per share as dividends.
The ATO’s earnings growth looks solid for the current financial year. The Zacks Consensus Estimate for 2025 is $8.02 per share, projecting earnings to grow 7.51% from the year-ago period.
There are many reasons why investors like dividends. They greatly increase stock investment profits, reduce overall portfolio risk, and bring tax benefits, among other things. However, not every company offers quarterly payments.
For example, it’s rare for a tech startup or a large growth company to offer dividends to shareholders. It’s more common for larger companies with higher profits to pay dividends. During periods of rising interest rates, income investors must be aware that high-yield stocks tend to struggle. With that in mind, ATO presents a compelling investment opportunity; not only is it an attractive dividend investment, but the stock also carries a strong Zacks Rank #2 (Buy).
