This Quiet Utility Has a Multi-Decade Dividend Growth Streak -- Here's Why Almost Nobody Talks About It

When it comes to utility stocks with the longest dividend growth streaks, names like Consolidated Edison and NextEra Energy may first come to mind. However, sandwiched between these two names, among utilities with the most consecutive years of dividend growth, is a lesser-known gas utility called Atmos Energy (NYSE: ATO).

Better yet, Atmos is experiencing a growth wave, but few are talking about it, as it has little connection to the artificial intelligence (AI) data center boom or the current utilities growth trend.

Image source: Getty Images

Atmos Energy isn't slowing down

Atmos Energy has raised its dividend for 42 consecutive years. At current prices, the gas utility has a forward yield of nearly 2.5%. However, even though it is less than a decade away from attaining Dividend King status, it's not as if this established utility is experiencing a payout slowdown.

In recent years, Atmos' dividend increases have averaged between 9% and 10%. Atmos' latest dividend increase, implemented last fall, increased quarterly payouts from $0.87 per share to $1 per share -- a nearly 15% increase. During the June quarter, Atmos reported revenue and earnings per share (EPS) growth of 4.8% and 12.8%, respectively.

The trend stays your friend

So, what is the main driver of Atmos' growth wave? Like most utility companies, Atmos generates a set return when it builds up infrastructure. However, in Texas, Atmos Energy's largest market, the company currently benefits from a regulatory regime that allows it to implement price hikes quickly.

Management doesn't expect these factors to enable it to sustain double-digit earnings growth indefinitely, but it has guided to 6%-8% EPS growth moving forward.

With a forward payout ratio of just under 45%, Atmos has plenty of room for dividend hikes that outpace earnings growth. That said, a growth slowdown could also see a downward revision to Atmos' valuation. At around 18 times forward earnings, Atmos is already trading at the upper end of the valuation range for gas utility stocks.

Nevertheless, if long-term dividend growth is your main objective, consider Atmos Energy for consistent yield and payout growth.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Consolidated Edison and NextEra Energy. The Motley Fool has a disclosure policy.