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

Zacks Equity Research

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 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) is a Utilities stock that has seen a price change of 8.66% so far this year. The power company is currently shelling out a dividend of $0.29 per share, with a dividend yield of 2.6%. This compares to the Utility - Electric Power industry's yield of 2.92% and the S&P 500's yield of 1.88%.

Looking at dividend growth, the company's current annualized dividend of $1.16 is up 9.4% from last year. Over the last 5 years, PNM Resources has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.66%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm'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.

PNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.15 per share, with earnings expected to increase 7.50% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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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