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Why PNM Resources (PNM) is a Great Dividend Stock Right Now

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

PNM Resources in Focus

PNM Resources (PNM - Free Report) is headquartered in Albuquerque, and is in the Utilities sector. The stock has seen a price change of 14.8% since the start of the year. The power company is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 2.46% compared to the Utility - Electric Power industry's yield of 2.97% and the S&P 500's yield of 1.96%.

In terms of dividend growth, the company's current annualized dividend of $1.16 is up 9.4% from last year. PNM Resources has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.17%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, PNM Resources's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PNM for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.15 per share, representing a year-over-year earnings growth rate of 7.50%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that PNM is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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