PNM Resources (NYSE:PNM) Has Announced A Dividend Of $0.3875

The board of PNM Resources, Inc. (NYSE:PNM) has announced that it will pay a dividend of $0.3875 per share on the 10th of May. The payment will take the dividend yield to 4.3%, which is in line with the average for the industry.

View our latest analysis for PNM Resources

PNM Resources' Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, PNM Resources was paying out 146% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to expand by 197.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 56% which would be quite comfortable going to take the dividend forward.

PNM Resources Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $0.66, compared to the most recent full-year payment of $1.55. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. PNM Resources hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think PNM Resources' payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for PNM Resources you should be aware of, and 2 of them are significant. Is PNM Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.