Atmos Energy (ATO) engages in the regulated natural gas distribution and pipeline and storage businesses; the company was founded in 1983 and is headquartered in Dallas, Texas, notes Robert Rapier, editor of Investing Daily's Utility Forecaster.
The company is the nation’s largest fully regulated, natural gas-only distributor, serving more than 3 million distribution customers in over 1,400 communities across eight states.
Natural gas prices have soared this year. That’s reflected in the company’s revenues, which have increased by 43% in two years. But, Atmos isn’t subjected to the volatility of commodity prices, because they primarily just resell the gas. Of course, a long history of steady performance is what landed Atmos on the Dividend Aristocrats list.
The company’s fiscal 2021 earnings marked its 19th consecutive year of growing earnings per share. This growth has helped fuel an incredible streak of dividend increases. Management’s recent announcement of an 8.7% dividend increase in fiscal 2021 marked 37 consecutive years of rising annual dividends.
Atmos Energy’s cash flows have grown steadily and consistently over time, except for 2021. This was an aberration, not an indicator of trouble for the company. Winter Storm Ari in Texas caused natural gas pipelines to freeze and forced Atmos to pay extremely high prices for natural gas.
But, over the past 12 months (which no longer includes the effect of Ari), cash flow has returned to normal. The company’s funds from operation (FFO) reached an all-time high for the twelve months that ended June 30th, and operating cash flow recovered to 2020 levels.
The reason for the steady cash flows is clear — Atmos is in an industry that is relatively insulated from recession. Its customers rely on the natural gas it delivers, and they will give up a lot of other things before they stop paying for natural gas.
Earnings per diluted share for fiscal 2022 are expected to be in the range of $5.50 to $5.60. That would represent an increase of 8.4% from 2021, which is in line with the increase in the company’s dividend.
The dividend yield is a modest 2.4%. But, with annual dividend increases in the 8% to 9% range, Atmos is a recession-resistant company with a reliable income stream. We should know — Atmos has been in our portfolio since 2002, and has rewarded investors with nearly a 10-fold return. ATO is currently a "Buy" in our model Growth Portfolio up to $128 a share.
