Atmos Energy Corporation (NYSE:ATO) has announced that it will be increasing its periodic dividend on the 9th of December to $0.87, which will be 8.1% higher than last year's comparable payment amount of $0.805. This takes the annual payment to 2.2% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for Atmos Energy
Atmos Energy's Payment Could Potentially Have Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Atmos Energy was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 19.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.
Atmos Energy Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was $1.48, compared to the most recent full-year payment of $3.22. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Atmos Energy Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Atmos Energy has seen EPS rising for the last five years, at 9.2% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Atmos Energy's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Atmos Energy that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About NYSE:ATO
Atmos Energy
Engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States.
Solid track record average dividend payer.
