Dividend Aristocrats In Focus: Atmos Energy

The list of Dividend Aristocrats is diversified across multiple sectors, including consumer goods, financials, industrials, and healthcare. One group that is surprisingly under-represented, is the utility sector. There are only two utility stocks on the list of Dividend Aristocrats: Consolidated Edison (ED) and 2020 addition Atmos Energy (ATO).

The fact that there are only two utilities on the list may come as a surprise, especially since utilities are widely regarded as being steady dividend stocks. This article will discuss Atmos Energy’s path to becoming a Dividend Aristocrat.

Business Overview

Atmos Energy is a large-cap utility. The company generates approximately $3.5 billion in annual revenue and has a market capitalization of nearly $14.5 billion.

The company serves over 3 million natural gas customers spread across eight different states.

ATO Overview

Source: Investor Presentation

Atmos reported first-quarter earnings on 2/5/20 and results were very strong as earnings per share surged to $1.47 against $1.38 in the year-ago period. The company also expects earnings per share growth to remain strong (6%-8% annualized) through 2024.

Growth Prospects

Earnings growth across the utility industry typically mimics GDP growth. However, we expect Atmos Energy to continue outperforming this trend as low gas prices will allow the company to continue accelerating its capital investments with limited interference from regulators. As a result, the company should benefit from strong rate base growth which in turn will generate annual earnings per share growth in accordance with management’s 6%-8% guidance.

The growth drivers for Atmos Energy are new customers, rate increases, and aggressive growth capital expenditures. One benefit of operating in a regulated industry is that utilities are permitted to raise rates on a regular basis, which virtually assures a steady level of growth.

ATO Growth

Source: Investor Presentation

The primary risk facing the company is its ability to achieve timely and positive regulatory rate adjustments. If the company achieved lower than expected allowed returns, especially in Texas which is its largest service territory, it could cause significant harm to profits.

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Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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