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PNM Resources Rewards Investors, Ups Annual Dividend by 9.3%

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PNM Resources, Inc. (PNM - Free Report) recently announced that its board of directors has approved an annual dividend hike of 9.3% for the company’s common stocks.

Notably, the revised quarterly stock dividend of 26.50 cents per share will be payable on Feb 1, 2018, to shareholders on record as of Jan 18, 2018. Post the hike, the company’s new annualized dividend will amount to $1.06 per share of common stock, up from 97 cents per share of common stock distributed earlier.

Dividend Hike – A Common Strategy for Utilities

Utility operators like PNM Resources generate more or less stable earnings, owing to endless need for electricity and utility services, which primarily drives the revenues of the Utility sector. This helps the stocks in this space enjoy a steady flow of revenues.  

As a result of steady flow of uninterrupted income, these stocks tend to generate consistent profits and reward shareholders with high dividends and PNM Resource is no exception. In line with this, another utility, Ameren Corp (AEE - Free Report) , rewarded its shareholders with a hike of 4% in its fourth-quarter cash dividend, this October. (Read more:Ameren Rewards Shareholders With Dividend Hike of 4%)

PNM Resources’ Strategic Plans

PNM Resources aims at fulfilling its strategic goal to deliver above industry average dividend growth in the near term. We believe the latest dividend hike approved by its management is indicative of that strategy.

Notably, PNM Resources has been a consistent performer with its earnings beating the Zacks Consensus Estimate in the last four quarters, with an average beat of 10%. Going ahead, the company targets a dividend payout ratio of 50-60% of its ongoing earnings, which depends on the company’s cash generating capability.

At the end of the third quarter, the company generated cash and cash equivalents worth $43.1 million, substantially up from the 2016-end figure of $4.5 million. This indicates the strong cash flow position of the company, which in turn will allow it reward its stakeholders with scrumptious dividend payments. Evidently the company paid dividend worth $58.3 million at the end of third quarter, up 10% from the prior-year period.

We believe the company’s strong cash flow generating capability will aid it to fund incremental dividends and thereby meet its long-term target of payout ratio, as mentioned above.

Price Movement

PNM Resources has outperformed the industry in the last six months. The company’s shares gained 14.6%, compared with the industry’s growth of 4.6%. The outperformance may have been driven by the company’s strong cash generating ability.

Zacks Rank & Key Picks

PNM Resources currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors can consider other top-ranked stocks in the Utility space like IDACORP, Inc. (IDA - Free Report) and Atlantic Power Corporation (AT - Free Report) that carry the same rank as PNM Resources.

IDACORP posted positive earnings surprise of 8.43% in third-quarter 2017. Its 2017 current year estimates have risen to $4.08 per share from $4.00 per share in the last 60 days.

Atlantic Power posted positive earnings surprise of 50% in third-quarter 2017. Its 2017 current year estimates have narrowed to a loss of 22 cents per share from a loss of 27 cents per share in the last 60 days.

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