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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. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

PNM Resources in Focus

Headquartered in Albuquerque, PNM Resources (PNM - Free Report) is a Utilities stock that has seen a price change of 21.34% so far this year. The power company is currently shelling out a dividend of $0.29 per share, with a dividend yield of 2.33%. This compares to the Utility - Electric Power industry's yield of 2.93% and the S&P 500's yield of 1.97%.

Looking at 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 9.66%. 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 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, PNM expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.16 per share, with earnings expected to increase 8% 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. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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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