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This is Why PNM Resources (PNM) is a Great Dividend Stock

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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 -5.71% since the start of the year. The power company is currently shelling out a dividend of $0.26 per share, with a dividend yield of 2.78%. This compares to the Utility - Electric Power industry's yield of 3.22% and the S&P 500's yield of 1.91%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.06 is up 9.3% from last year. In the past five-year period, PNM Resources has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.72%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. PNM Resources's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.

PNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.95 per share, with earnings expected to increase 0.52% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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