Atmos Energy's (ATO) Board Approves 8.3% Hike In Dividend

Atmos Energy Corporation’s (NYSE:ATO) board of directors announced a hike in company’s quarterly dividend to 52.5 cents per share, which annually stands at $2.10. The figure reflects an 8.3% hike compared with the fiscal year 2018’s annual rate of $1.94 per share.

Details of the Dividend Raise

The quarterly dividend of 52.5 cents per share is payable Dec 10, 2018 to shareholders of record as of Nov 26, 2018. This is the company’s 140th consecutive quarterly dividend.

The board members of Atmos Energy have been clearing annual dividend hikes for nearly three decades now. Notably, yearly payout increases are becoming a steady policy for this utility company. The company’s latest approval marks the 35th straight year of dividend raise.

The current annualized dividend yield is 2.2% compared with the Zacks S&P 500 Composite Group’s average of 1.9%. This rise in distributable income vouches for the company’s strong balance sheet and a constant cash flow position, thereby providing it with financial flexibility and a cushion for incremental dividend.

Can Atmos Energy Sustain Dividend Increases?

Atmos Energy has a sturdy capital expenditure plan in place, enabling it to increase the safety and reliability of its natural gas pipelines. In fiscal 2018, the total capital expenditure was $1,468 million, and was invested in increasing systems and pipeline integrity through replacement of pipelines, leak repairs and cathodic protection. Over the next five years, the company intends to spend to the tune of $8 billion. Good news is that nearly 85% of Atmos Energy’s annual capital investments start reaping returns within a span of six months.

Customers and investors gain from constructive rate outcomes. In fiscal 2018, the company’s operating income rose by $80.1 million on account of various new rates being implemented, which were approved during the full fiscal. Courtesy of the rate raises; the company expects its operating income to increase by $22.8 million in fiscal 2019 on account of the already implemented rates. Also, the company’s operating income might further grow by $13.8 million going forward, banking on various rate cases that are in progress.

We believe, the company’s strong cash flow, a sturdy capex plan and rate cases will help it generate sufficient funds to meet its financial commitments.

Dividend Hikes in the Utility Sector

Atmos Energy is not the only company to reward its shareholders with increased dividends. There are some other players as well in the same sector to add shareholder value.

For instance, Ameren Corporation (NYSE:AEE) has approved a 3.8% quarterly cash dividend raise on its common stock of 47.5 cents per share on Oct 12, 2018. Post issuance of the new rate, the annualized dividend will be $1.90. The hiked dividend is payable Dec 31, 2018 to shareholders of record as of Dec 12, 2018.

Also, on Oct 23, 2018, American Electric Power Company, Inc.’s (NYSE:AEP) Board of Directors declared a regular quarterly cash dividend of 67 cents per share on the company's common stock, an increase of 8.1% from the previous 62 cents. The hiked dividend is payable Dec 10, 2018 to shareholders of record as of Nov 9, 2018.

Price Movement

Atmos Energy’s stock has gained about 9.2% in the past year compared with the Zacks Utility - Gas Distribution’s growth of 3.7%.

Zacks Rank & Key Pick

Atmos Energy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock from the same space is as follows:

One Gas, Inc. (NYSE:OGS) carries a Zacks Rank #2 (Buy). The stock has seen the Zacks Consensus Estimate for 2018 earnings per share move 0.9% north over the past 30 days to $3.28.

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