EUR 850.00 For Business Accounts Only

Morningstar | We Expect Atmos To Invest $8.5 Billion, 80% for Pipeline Reliability, During the Next Five Years

Favorable regulatory frameworks and an almost doubling of capital expenditures in the past five years have driven strong earnings growth and steady dividend increases for Atmos Energy. We expect about $8.5 billion of capital expenditures during the next five years, higher than the approximately $8 billion targeted by management in November 2017. Roughly 80% of the total investment are for safety and reliability, replacing bare steel, cast iron, and vintage plastic pipe. We expect this level of investment to last through the next decade.We estimate capital expenditures of $1.4 billion in 2018, increasing to $2 billion by 2022, well above our estimates for depreciation and amortization. This should drive average annual rate base growth close over 12% during this period. We estimate earnings per share will grow less than rate base growth, about 7.3% annually, due to the dilutive impact of over $2 billion of equity issued over this period as the company maintains a strong balance sheet.Atmos Energy's board of directors was somewhat stingy with dividend increases in the past, but this appears to be changing. They increased the dividend more than 5% in 2014 and 2015, and bumped it up more than 7% in 2016 and 2017. In the first quarter of 2018, the dividend was increased 7.8% to an annual rate of $1.94 per share.Management has targeted a conservative dividend payout ratio of 50%-55%. With our estimate of earnings growth, we believe Atmos' dividend increases will average about 7.5% over the next five years. The majority of Atmos' operations are regulated by the Texas Railroad Commission, a regulatory body that has historically been constructive to shareholders. We expect this constructive regulatory framework to continue; given this and the investment and earnings growth visibility, we have a high level of confidence that the company's string of 34 consecutive years of dividend increases will continue into the next decade.