OWhether through stocks, bonds, ETFs or other types of securities, all investors like to see their portfolios generate big returns. But when you’re an income-oriented investor, your primary goal is to generate 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 the distribution of a company’s profits paid to shareholders; it is often considered by its dividend yield, a metric that measures a dividend as a percentage of the current share price. Many academic studies show that dividends are a large part of long-term returns, and in many cases dividend contributions exceed one-third of total returns.
Focus on PNM resources
Albuquerque-based PNM Resources (PNM) is in the utilities sector, and so far this year the stock has seen a price change of 5.53%. The power company currently pays a dividend of $0.35 per share, with a dividend yield of 2.89%. This compares to the Utilities – Electric Power industry return of 3.1% and the S&P 500 return of 1.44%.
In terms of dividend growth, the company’s current annualized dividend of $1.39 is up 6.1% from last year. Over the past five-year period, PNM Resources has increased its dividend 5 times on an annual basis for an average annual increase of 7.48%. Future dividend growth will depend on earnings growth as well as the payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. Currently, PNM Resources’ payout ratio is 53%, meaning it has paid out 53% of its 12-month EPS as a dividend.
Earnings growth looks solid for PNM for this fiscal year. Zacks consensus estimate for 2022 is $2.55 per share, with earnings expected to rise 4.08% from the prior year period.
Investors love dividends for a variety of reasons, ranging from tax benefits and lower overall portfolio risk to vastly improved earnings from equity investments. It’s important to keep in mind that not all companies provide a quarterly payment.
High-growth companies or tech start-ups, for example, rarely pay a dividend to their shareholders, while larger, more established companies with more secure earnings are often considered the best dividend options. Income-oriented investors should be aware that high yield stocks tend to struggle during periods of rising interest rates. That said, they can take comfort in the fact that PNM is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks rating of #2 (Buy).
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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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.