Updated on April 25th, 2024 by Bob Ciura
The Dividend Aristocrats are a group of stocks in the S&P 500 Index with 25+ years of consecutive dividend increases. These companies have high-quality business models that have stood the test of time and shown a remarkable ability to raise dividends every year regardless of the economy.
We have compiled a list of all 68 Dividend Aristocrats, along with relevant financial metrics like dividend yield and P/E ratios. You can download the full Dividend Aristocrats list by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
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 three utility stocks on the list of Dividend Aristocrats: Consolidated Edison (ED), NextEra Energy (NEE), and Atmos Energy (ATO).
The fact that there are only three 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 can trace its beginnings all the way back to 1906, when it was formed in Texas. Since that time, it has grown both organically and through mergers. Today, Atmos Energy distributes and stores natural gas in eight states, serving over 3 million customers.
In addition, Atmos owns about 5,700 miles of natural gas transmission lines. The utility should generate about $4.6 billion in revenue this year. The company serves over 3 million natural gas customers spread across eight different states.
Source: Investor Presentation
Atmos posted first quarter earnings on February 6th, 2024. Earnings-per-share came to $2.08, or $311 million on a dollar basis. Capital expenditures for the quarter were $770 million, with 82% of that capex being focused on safety and reliability, with the balance on growth projects.
Atmos reaffirmed its outlook for $6.45 to $6.65 in earnings-per-share for this year, and we’ve slightly boosted our estimate for this year to $6.60, up a dime from our initial estimate. The management team continues to expect 6% to 8% annual earnings-per-share growth, in line with our estimate.
Growth Prospects
Earnings growth across the utility industry typically mimics GDP growth, plus a couple of percentage points. However, we expect Atmos Energy to continue outperforming this trend due to its focus on capital investment in its regulated operations, a constructive regulatory environment in Texas, and population growth.
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 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.
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, it could cause significant harm to profits.
However, we believe Atmos can achieve at least 7% annual EPS growth through continued improvements in gross margin, reductions in operating costs as a percentage of revenue, and top-line growth via acquisitions as well as organic customer growth.
The company continues to file favorable rate cases with its various localities that provide for small revenue increases over time as well, as we saw again in fiscal 2023 full–year results.
Competitive Advantages & Recession Performance
Atmos Energy’s main competitive advantage is the high regulatory hurdles of the utility industry. Gas service is necessary and vital to society. As a result, the industry is highly regulated, making it virtually impossible for a new competitor to enter the market. This provides a great deal of certainty to Atmos Energy and its annual earnings.
Another competitive advantage is the company’s stable business model and sound balance sheet, giving it an attractive cost of capital. This enables it to fund accretive acquisitions and growth capital expenditures, driving outsized earnings per share growth.
In addition, the utility business model is highly recession-resistant. While many companies experienced large earnings declines in 2008 and 2009, Atmos Energy’s earnings per share kept growing. Earnings-per-share during the Great Recession are shown below:
- 2007 earnings-per-share of $1.91
- 2008 earnings-per-share of $1.99 (4% growth)
- 2009 earnings-per-share of $2.07 (4% growth)
- 2010 earnings-per-share of $2.20 (6% growth)
The company still generated healthy growth even during the worst of the economic downturn. Results remained resilient and continued to grow during the pandemic as well, demonstrating the mission-critical nature of Atmos’ assets.
This resilience has allowed Atmos Energy to continue increasing its dividend each year during these unfavorable market environments.
Valuation & Expected Returns
Atmos Energy is expected to earn $6.60 this year. Based on this, the stock trades with a price-to-earnings ratio of 17.8x. This is slightly below our fair value estimate of 19x earnings, which is slightly below the 10-year average price-to-earnings ratio for the stock.
As a result, Atmos Energy shares appear to be undervalued. If the stock valuation expands from 17.8 to 19 over the next five years, the corresponding multiple expansion would boost annual returns by 1.3%. This could be a small headwind for future returns.
Fortunately, the stock could still provide positive returns to shareholders, through earnings growth and dividends. We expect the company to grow earnings by 7% per year over the next five years.
In addition, the stock has a current dividend yield of 2.7%. ATO has increased its dividend for 40 consecutive years.
Putting it all together, Atmos Energy’s total expected returns could look like the following:
- 7% earnings growth
- 1.3% P/E multiple expansion
- 2.7% dividend yield
Added up, Atmos Energy is expected to generate 11.0% annualized total returns over the next five years, making the stock attractive for investors interested in dividend growth and total returns.
The dividend yield is not substantial but remains attractive, while the dividend appears quite safe. The company has a projected 2024 payout ratio of ~49%, which indicates a sustainable dividend. As a result, we view Atmos Energy as a blue-chip stock.
Final Thoughts
Atmos Energy stock is attractive for investors looking for an above-average yield and regular dividend growth. Because of this, Atmos Energy can serve a valuable purpose in an income investor’s portfolio as the stock offers a very secure and growing dividend income stream, and its dividend yield is well above the average dividend yield of the S&P 500 Index.
Note: Atmos Energy also ranks well using The Chowder Rule.
Atmos Energy is also a Dividend Aristocrat and should raise its dividend each year. With five-year expected returns of 11% per year, ATO stock is a buy.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: