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This is Why PNM Resources (PNM) is a Great Dividend Stock

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.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

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 -20.21%. Currently paying a dividend of $0.31 per share, the company has a dividend yield of 3.04%. In comparison, the Utility - Electric Power industry's yield is 3.57%, while the S&P 500's yield is 1.82%.

Looking at dividend growth, the company's current annualized dividend of $1.23 is up 6% 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 9.50%. 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 58%. This means it paid out 58% 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 $2.20 per share, representing a year-over-year earnings growth rate of 1.85%.

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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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