Dividend Growth Stock Overview: Atmos Energy Corporation

Natural gas company Atmos Energy is planning on replacing between 520 and 700 miles
of pipeline in fiscal year 2015.
Photo courtesy Roy Luck/flickr.com.

About Atmos Energy Corporation

Atmos Energy is an integrated energy company that distributes and transports natural gas to nearly 3 million customers across 8 states. Nearly 2 million customers are in Texas, where Atmos is headquartered, while the remaining customers are distributed across Kansas, Colorado, Kentucky, Tennessee, Louisiana and Mississippi. Atmos also services a limited area in Virginia.

Atmos has both regulated and non-regulated business. The regulated business is divided into two operating segments: distribution and pipeline/transportation. The non-regulated business segment is involved in natural gas marketing, transportation and storage to municipalities, local gas distribution companies and industrial customers.

The regulated distribution segment had net income of $171.6 million in fiscal 2014 (which ended September 30, 2014), which was 59% of total company income. This was a 4.8% increase over 2013 numbers. In addition, during fiscal 2014 the company completed nearly 20 proceedings with regulatory agencies, which Atmos estimates will add $47.8 million to annual operating income going forward.

The regulated pipeline segment manages the more than 5,400 miles of gas pipelines that Atmos owns, as well as the storage operations of the company. This is one of the largest pipeline operations in Texas, with a heavy concentration in the larger natural gas producing areas of Texas. This segment provided 30% of Atmos’ operations, with net income in 2014 of $86.1 million, up 26% from fiscal year 2013.

The operations within both regulated segments earn a return on equity between about 10 – 12%.

Finally, the Nonregulated segment provides all non-regulated operations and services for Atmos, including gas management, transmission and storage. The segment operates as Atmos Energy Holdings, Inc., a wholly owned subsidiary of Atmos Energy; its primary business is to buy, sell and deliver natural gas to about 1,000 customers. The segment earned $32.0 million in fiscal 2014, nearly tripling the income earned in fiscal 2013. With the increase, the nonregulated segment contributed 11% of Atmos’ net income.

Overall, Atmos Energy had net income of $290 million in fiscal 2014, up 19.2% from fiscal 2013. Net income per share was $2.96, up 12.1%. The year-to-year increase was due primarily to increases in natural gas use from colder-than-normal weather across Atmos’ service areas. (This was also the reason for the large increase in Atmos’ nonregulated business segment.)

In February 2014, Atmos had a secondary offering of stock, netting $390 million from the sale of 9.2 million shares. This contributed to a 6.4% increase in the number of shares outstanding. The proceeds were used to fund infrastructure spending and general corporate expenses, and to repay short-term debt.

The company is a member of the S&P Mid Cap 400 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol ATO.

Atmos Energy’s Dividend and Stock Split History

Atmos Energy Dividend Growth

Atmos Energy has grown its dividend an average of about 2% a year over the last 10 years.

Atmos Energy and its predecessors have paid dividends since 1985; Atmos has increased dividends since 1988. The company has traditionally announced annual dividend increases in the first week of November, with shareholders of record in mid-November eligible for the increased dividend. Atmos’ most recent dividend increase was in November 2014, when the company increased the dividend by 5.4% to an annualized rate of $1.56 a share. I’m expecting Atmos to announce its 28th annual dividend increase in November 2015.

Despite the dividend increase in 2014, Atmos Energy has established a record of very small dividend increases. From 2001 – 2012, the company grew its dividend less than 2% year-over-year. Due to this, Atmos’ compounded annual dividend growth rate (CADGR) is very low. The company’s 5- and 10-year CADGRs are 2.59% and 2.05%, respectively. Longer term, the rates are not much better, with Atmos’ 20-year CADGR at 2.46% and 25-year CADGR at 2.91%.

Atmos Energy has split its stock once since beginning its record of annual dividend increases in 1988 – a 3-for-2 split in May 1994.

Atmos Energy’s Direct Purchase and Dividend Reinvestment Plans

Atmos Energy has both direct purchase and dividend reinvestment plans. The dividend reinvestment plan allows for partial dividend reinvestment. The fee structure is favorable for investors although there is a relatively large minimum investment required for new investments. New investors are required to purchase $1,250 or transfer in 50 currently owned shares into the plan. Atmos Energy pays all the fees on all types of purchases within the plans.

When you sell your shares in the plan, you’ll pay a transaction fee of $15 plus a 5-cent per share commission. Fees will be deducted from the proceeds of the sale.

Helpful Links

Atmos Energy Corporation’s Investor Relations Website

Current quote and financial summary for Atmos Energy Corporation (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Atmos Energy Corporation

 

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