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PNM Resources (PNM) Could Be a Great Choice

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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.

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

Headquartered in Albuquerque, PNM Resources (PNM) is a Utilities stock that has seen a price change of 2.61% so far this year. The power company is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 2.97% compared to the Utility - Electric Power industry's yield of 3.07% and the S&P 500's yield of 1.53%.

In terms of dividend growth, the company's current annualized dividend of $1.39 is up 6.1% 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 7.61%. 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 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, PNM expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $2.55 per share, with earnings expected to increase 4.08% 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.

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. With that in mind, PNM is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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