Why PNM Resources (PNM) is a Top Dividend Stock for Your Portfolio

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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

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 0.81% since the start of the year. Currently paying a dividend of $0.7 per share, the company has a dividend yield of 3.02%. In comparison, the Utility - Electric Power industry's yield is 3.12%, while the S&P 500's yield is 1.5%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.39 is up 6.1% 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 7.61%. 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.

Looking at this fiscal year, PNM expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $2.55 per share, which represents a year-over-year growth rate of 4.08%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. 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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