Atmos Energy (ATO): Steady Growth in a Volatile Market Through Infrastructure and Regulation

Natural gas distribution is a cornerstone of utilities, offering stable cash flows and regulatory predictability in an otherwise volatile economy. Among its peers, Atmos Energy (ATO) stands out as a leader, leveraging strategic investments in infrastructure, favorable regulatory outcomes, and a decades-long history of dividend growth. Here's why ATO is positioned to deliver resilient returns, even as competitors like ONE Gas (OGS) face headwinds.

Cash Flow Stability: ATO's Foundation

Atmos Energy's financial performance underscores its reliability. In fiscal 2024, the company reported net income of $1 billion, with an EPS of $6.83. Capital expenditures (capex) hit $2.9 billion, with 83% allocated to safety and reliability initiatives—a clear priority that aligns with regulatory incentives.

Its dividend history is equally compelling. ATO has increased its dividend for 37 consecutive years, a testament to its financial discipline. In 2025, the annual dividend rose 8.1% to $3.48 per share, supported by a payout ratio of 46.1%, leaving ample room for future growth.

Compare this to ONE Gas (OGS), which maintained a 63.9% payout ratio in 2024, closer to the utilities sector average but leaving less cushion for earnings volatility. ATO's lower payout ratio suggests greater sustainability, even during economic downturns.

Regulatory Tailwinds vs. Headwinds

The gas distribution sector is heavily regulated, and ATO has mastered navigating this environment. In 2024, regulatory improvements added $376 million annually to its revenue through rate cases in Texas and Kentucky. These outcomes reflect the company's ability to secure favorable terms for infrastructure investments, which regulators prioritize for public safety and grid modernization.

ONE Gas, by contrast, faces more complex challenges. While its securitization programs (e.g., the $5.486 billion bond issuance) fund infrastructure upgrades, they also expose it to regulatory delays and cost-recovery risks. For instance, its 2024 capital expenditures totaled $762 million, but projects like Texas's Gas Reliability Infrastructure Program face approval timelines that could delay cash flow.

Infrastructure Investments: ATO's Growth Engine

Atmos Energy's capex strategy is a key differentiator. In 2025, it plans to spend $3.7 billion—up 28% from 2024—primarily on safety, reliability, and customer growth. This includes expanding service in high-demand areas like Texas, where it added 59,000 new customers in early 2025. Such investments not only boost revenue but also qualify for rate hikes, creating a virtuous cycle.

ONE Gas's 2025 capex guidance of $750 million, while focused on similar goals, pales in scale. ATO's larger investments suggest it can capture more growth opportunities, particularly in states with rising energy demand.

Why ATO Outperforms Peers in Risky Markets

1. Dividend Safety: ATO's payout ratio (46%) is comfortably below its peers, reducing the risk of cuts during economic stress.
2. Regulatory Favorability: Its track record in Texas and Kentucky ensures steady revenue streams, while OGS's reliance on securitization exposes it to interest rate and regulatory risks.
3. Scale and Diversification: Serving 3 million customers across eight states, ATO's geographic spread reduces regional vulnerability. ONE Gas, concentrated in Oklahoma and Texas, faces greater exposure to local economic shifts.

Investment Thesis: ATO for Defensive Growth

Atmos Energy is a low-risk, high-reward utility stock for investors seeking stability. With a dividend yield of 2.27% (vs. OGS's 3.66%, which may be unsustainable given its payout ratio) and a history of 8%-plus annual dividend growth, ATO offers a compelling income play.

The stock's 0.76% post-earnings rise in early 2025 signals market confidence in its strategy. Meanwhile, peers like OGS face higher execution risks tied to their capital structures and regulatory approvals.

Conclusion: ATO's Edge in a Volatile World

In an era of economic uncertainty, Atmos Energy's focus on infrastructure, regulatory mastery, and disciplined capital allocation positions it as a top-tier utility stock. While ONE Gas and others navigate complex challenges, ATO's resilience and growth trajectory make it a safer bet for long-term investors.

Recommendation: Consider adding ATO to a diversified portfolio for steady income and moderate growth. Its valuation—trading at 18x 2025 EPS estimates—remains reasonable given its defensive profile and dividend strength.

Final Note: Monitor regulatory outcomes in Texas and Kentucky, as these will directly impact ATO's earnings trajectory. For aggressive investors, OGS may offer higher yields, but ATO's safety edge is hard to ignore.