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

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 4.01%. The power company is currently shelling out a dividend of $0.35 per share, with a dividend yield of 2.93%. This compares to the Utility - Electric Power industry's yield of 3.11% and the S&P 500's yield of 1.69%.

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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 7.50%. 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 52%, which means it paid out 52% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PNM for this fiscal year. The Zacks Consensus Estimate for 2022 is $2.60 per share, which represents a year-over-year growth rate of 6.12%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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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