Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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

Headquartered in Dallas, Atmos Energy (ATO) is a Utilities stock that has seen a price change of -0.17% so far this year. The natural gas utility is paying out a dividend of $0.68 per share at the moment, with a dividend yield of 2.6% compared to the Utility - Gas Distribution industry's yield of 2.79% and the S&P 500's yield of 1.38%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.72 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 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%, meaning it paid out 48% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, ATO expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $5.49 per share, which represents a year-over-year growth rate of 7.23%.

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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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