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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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
Based in Albuquerque, PNM Resources (PNM) is in the Utilities sector, and so far this year, shares have seen a price change of 4.82%. The power company is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 2.91% compared to the Utility - Electric Power industry's yield of 2.96% and the S&P 500's yield of 1.45%.
Looking at dividend growth, the company's current annualized dividend of $1.39 is up 6.1% 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 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.
PNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $2.55 per share, which represents a year-over-year growth rate of 4.08%.
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.
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. 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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PNM Resources, Inc. (PNM) : Free Stock Analysis Report
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