Last update on 2024-06-27

Atmos Energy (ATO) - Dividend Analysis (Final Score: 5/8)

Analyze the stability and performance of Atmos Energy (ATO) dividends using an 8-criteria scoring system. Final score: 5/8. Explore in-depth metrics and trends.

Short Analysis - Dividend Score: 5

We're running Atmos Energy (ATO) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Atmos Energy (ATO) was evaluated on an 8-criteria scoring system to assess its dividend policy's performance and stability, scoring a 5 out of 8. The analysis showed that its current dividend yield of 2.61% is below the industry average. Although the dividend growth rate over 20 years averaged 18.11%, it showed significant volatility, implying inconsistent and unstable growth. A positive aspect was the average payout ratio of 58.06%, under the 65% threshold, reflecting sustainability. Earnings generally covered dividends well, except for an anomaly in 2022, but cash flow coverage was inconsistent with several negative years. Atmos Energy has consistently paid dividends for over 25 years, marking reliability, though it lacks consistent stock repurchases being a negative mark. This fluctuating dividend performance might necessitate a deeper look into reinvestment plans, growth prospects, and financial stability.

Insights for Value Investors Seeking Stable Income

Given the mixed results of Atmos Energy's dividend assessment, one should proceed with caution. While the long history of paying dividends and a sustainable payout ratio are positives, the inconsistency in dividend growth and cash flow coverage could be a concern. Potential investors should look deeper into the company's growth strategies, reinvestment plans, and ensure that they are comfortable with its financial stability before committing. It is advised to consider other reliable stocks for stable dividends alongside Atmos Energy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

criterion for Atmos Energy (ATO) and why it is important to consider

A lower dividend yield compared to the industry average suggests that Atmos Energy's stock may be relatively overvalued or that the company is reinvesting earnings for growth rather than returning a larger portion of profits to shareholders. The dividend yield for Atmos has fluctuated over the years, from a high of 5.5063% in 2008 to as low as 0.6068% in 2022. Currently, it stands at 2.61%. Compared to the industry average which was highest at 6.31% in 2020 and lowest at 2.88% in 2019 , despite some peaks and troughs, Atmos Energy's long-term trend shows a decrease from earlier high yields.Nevertheless, the current difference between the 2.61% and the industry's 5.09% emphasizes that investors might expect relatively lower direct returns from dividends, calling for a deeper dive into the company's reinvestment strategies, growth potential, and future earnings projections.

Average annual Growth Rate higher than 5% in the last 20 years?

Criterion 1.1 observes the Dividend Growth Rate (DGR) over a span of 20 years and checks whether it is higher than 5%. DGR is an important metric as it indicates a company's ability to consistently increase shareholder returns and demonstrates the financial health and profitability of a corporation.

Upon examining the Dividend Ratio data for Atmos Energy (ATO) from 2003 to 2023, we observe significant volatility. The data points, especially the extreme ones such as 31.6901 in 2014, 100 in 2021, and -80.3468 in 2022 hint erratic changes, inconsistent with a steady growth rate. The average dividend ratio over these years is approximately 18.11%, which surpasses the 5% benchmark, but the large swings largely distort the stability. A stable increasing dividend trend is essential for it to be viewed positively, thus the variance signifies inconsistency rather than reliable growth. Also, the values closer to the beginning and end of the timespan display negative changes, adding to potential investor concerns. Overall, this erratic nature despite an average above 5%, would most probably be interpreted negatively due to unpredictability and instability.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio is a key indicator of a company's dividend sustainability and financial health, representing the percentage of earnings distributed as dividends. A payout ratio lower than 65% is generally deemed sustainable.

The data indicates that the average payout ratio for Atmos Energy (ATO) over the past 20 years is 58.06%, which is 6.94% below the 65% threshold. Most of the years recorded show payout ratios comfortably below 65%, except for a few outliers like 2003 (78.16%), 2004 (77.31%), and 2005 (72.45%), and notably an extraordinary spike in 2021 (99.64%). The median trajectory shows stability in maintaining a payout ratio around or below 60%, except for anomalies caused potentially by unusual financial circumstances or significant investment phases. Notably, the payout ratio dropped significantly in recent years, such as {36.45%} in 2018 and averaging between 47% and 50% post-2019, suggesting a positive trend towards more conservative and sustainable financial management. This is generally a good sign for investors looking for stable and sustainable dividends.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings if the company's earnings per share (EPS) are greater than its dividends per share (DPS). This indicates the company generates sufficient earnings to pay its dividends, which is vital for sustaining or growing dividend payouts.

Upon examining the data for Atmos Energy (ATO), from 2003 to 2023, it's noticeable that the earnings per share (EPS) have consistently been higher than dividends per share (DPS), except for the fiscal year 2022, where the DPS entry is 0, making the cover ratio also 0. The average dividend coverage ratio from the provided data points shows varying strengths, with the ratio generally being above 0.5, indicating robust coverage. Notably, the year 2019 had an extraordinary dividend of $5.11, reflected by a ratio of 0.9964, which is quite high. This irregularity is isolated incidents, not a persistent trend. Overall, the pattern demonstrates that Atmos Energy (ATO) has maintained a strong and stable approach towards covering dividends with earnings, which is favorable for dividend sustainability and reflects sound financial health. The divergence in 2022 requires further scrutiny as it breaks the consistent pattern of coverage.

Dividends Well Covered by Cash Flow?

This criterion measures whether Atmos Energy's dividends are well supported by its free cash flow. A higher ratio indicates that the company generates sufficient cash to cover its dividends, which is essential for sustainability.

Atmos Energy (ATO) has had a fluctuating performance regarding covering its dividends with free cash flow over the years. The Free Cash Flow (FCF) has shown significant volatility, with notable dips in several years such as 2003 (-$109.99 million), 2006 (-$113.87 million), and, most strikingly, 2021 and 2022, where FCF went deep into the negative territory at -$3.05 billion and -$1.47 billion, respectively. Such large negative values indicate that the company had to rely on borrowing or other sources of funds to maintain dividend payouts. Coupled with these negative cash flow years, the dividend payout amount has been on an upward trend, growing from $55.29 million in 2003 to $430.35 million in 2023. As a consequence, the ratio of dividends covered by cash flow has been less than 1 in many years, indicating that often the dividends were not well covered by free cash flow. While the year 2023 shows a promising positive coverage ratio of 0.658, the overall trend suggests systemic challenges in maintaining dividend payments without external funding sources. This is a concerning trend for the financial sustainability of divis to equity investors.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Atmos Energy (ATO) and why it is important to consider

Stable and growing dividends over the long-term represent a company's financial health and commitment to returning value to shareholders. Unlike volatile earnings, a stable or steadily rising dividend payment forecast a company's disciplined approach to capital management. For income-focused investors, such as retirees, dividend stability can often substitute a dependable income stream. Consequently, dividends that don't drop significantly reflect positively on the company's sustainable business model, ensuring income efficiency.

Dividends Paid for Over 25 Years?

Consider whether a company has consistently paid dividends for over 25 years. If it has, it indicates a strong cushion for shareholders which is important for long-term investor confidence.

Atmos Energy (ATO) has been consistently paying dividends for over 25 years, as evidenced by the dividend per share values from 1998 to 2023. This consistent trend is a positive indicator for shareholders and long-term investors. Despite some fluctuations in the exact dividend amounts, the overall trend shows a commitment to returning value to shareholders. This trend is particularly beneficial for those seeking reliable passive income. There have been notable increases such as the jump from 3.46 in 2022 to 3.025M in 2023, although occasional decreases like the one in 2022 to 0.68 should be understood in a broader financial context.

Reliable Stock Repurchases Over the Past 20 Years?

Examining stock repurchase history over the past 20 years digs into whether a company has consistently been engaging in buybacks to return value to its shareholders. It's important as it might hint at the company's confidence in its own financial stability and growth.

Atmos Energy (ATO) exhibits a disconcerting trend in terms of stock repurchases over the past 20 years. The data unveils that there was only one reliable year of repurchase activity, which occurred in 2011. When companies repurchase their stocks, they often signal confidence in the company's prospects, potentially increasing shareholder value because fewer shares mean an increase in earnings per share (EPS), assuming profits remain constant or grow. However, for Atmos Energy, instead of repurchasing shares, the number of shares outstanding has predominantly increased year-over-year rising from approximately 46.5 million in 2003 to approximately 145.1 million in 2023, showcasing almost a tripling in shares over 20 years. The average annual repurchase rate over these two decades stands at a rather insubstantial 5.6573, underlining the lack of emphasis on buybacks. This trend might indicate that Atmos Energy has possibly prioritized issuing new shares to fund its activities or expand operations rather than returning capital to shareholders via buybacks. Hence, this criterion does not work favorably for Atmos Energy.