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 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
PNM Resources (PNM) is headquartered in Albuquerque, and is in the Utilities sector. The stock has seen a price change of -12.96% since the start of the year. Currently paying a dividend of $0.31 per share, the company has a dividend yield of 2.79%. In comparison, the Utility - Electric Power industry's yield is 3.53%, while the S&P 500's yield is 1.65%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.23 is up 6% 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 9.50%. 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%. This means 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 2020 is $2.21 per share, representing a year-over-year earnings growth rate of 2.31%.
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. 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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