Atmos Energy is one of the largest natural gas distributors in North America, serving 9 States and 1400 communities. Not only is it known for its ability to move natural gas fluidly throughout the communities it serves, but it’s also pretty good at delivering value to its shareholders. And, Atmos Energy has been able to deliver this value for a long time.
Check out this chart of Atmos Energy’s 20-year Annual Share Price returns:
If you don’t happen to have your calculator with you, let me indulge you. Atmos Energy’s average share price return per year over the last 20 years is a stout 8.80%. Not bad, but with inflation running hot, it’s not going to make you rich.
This is a great illustration of why you hold for the long-term. If you would have bought shares in year 5, then got tired of the lack of returns, and sold in year 7, you’d only be up +-5%. If you had bought in year 13, then sold in year 15, you’d be down +-34%. But, being patient and holding since 2003, would have rewarded you with an 8.80% Average return, each and every year.
Monetarily speaking.. a $10,000 investment made soon after the smoke cleared from Y2K; in 2003 to be exact, would now be worth a cool $47,510.11. Believe it or not, thats a 375.11% Capital Appreciation Rate. Not too shabby!
But, reinvest those dividends and the math looks even friendlier.
20-Year Annual Dividend Increase Average=4.66%
Here is the 20-year chart for Atmos Energy’s annual dividend payouts. Looks pretty flat for the first 10 years, then they must of had an epiphany, and decided to reward their shareholders. It was about time….ten years of flat dividend growth…No Bueno!
After management decided it was time to attract some new investors, by way of offering an annual increase on dividend payments, the returns got a little juicer. Which brings me to my TAR Report.
What is a TAR Report you ask?
TAR stands for ‘Total Aggregate Return’, which is a term I made up to represent the real ‘return on investment’ a stock delivers over a period of time. For long-term dividend investors, it’s these three variables you should ALWAYS look at in order to gauge how your investment is performing, they include:
If you’re not getting all three of these, in return for your hard-earned money, you’re getting short-changed.
Don’t get short-changed!
I’ll explain each variable separately; first Capital Appreciation.
Capital Appreciation is the amount your investment has increased over a specific time frame. For instance, the $10,000 investment in Atmos Energy previously discussed in 2003, is now worth $47,510.11 today. This is an increase of $37,510.11 or 375% over 20 years.
But, we certainly cannot rely solely on Capital Appreciation, because it may just not deliver….
Capital Appreciation is too dependent on extenuating circumstances, things like the global economic environment, the political landscape, and short-term market blips can pose a threat to Capital Appreciation. As a result, Capital Appreciation should only be considered ‘one leg of the stool’.
Dividend Income, the whole reason we invest right? INCOME! Well, partly…But, it’s the second leg of the ‘stool’, because without dividend income, it’s just a game of ‘greater fool theory’. ‘Greater Fool Theory’ is the act of purchasing something with the hope that someday you can sell it to someone else ‘the fool‘ for more than you paid for it. Long-term investors should be investing for income, along with the hope of an increase in the assets value.
Dividend Growth….. The 3rd and final leg of the ‘investment stool’. Ideally as a dividend investor, we’d like to see the payment we receive on our investment, go up from year to year. If for no other reason, not that as investors we’re greedy or anything, but just to keep up with inflation. I look for long-term consistency with regard to dividend growth.
You want to talk about a model of dividend growth consistency, Check out this
Dividend Growth Chart of Coca-Cola.
Year in and Year out, Coca-Cola rewards it’s shareholders with an increase in dividends. In fact in the last 20 years the average increase in dividend payments from one year to the next, is 7.91%. I’ll take a pay raise of 7.91% every year!
So, ‘TAR’ or Total Aggregate Return is the overall percent of return you’d have earned by holding a stock for a certain period of time. In looking at our case study of Atmos Energy, if you bought shares back in 2003 and were still holding them today, and reinvesting the dividend payments your total return would be; a very healthy 658.46%. Perhaps there are better investments out there in say; real estate or crypto, but if you’re into investing for the income, then looking for assets like Atmos Energy should be right in your Wheel-house!