PNM Resources' (NYSE:PNM) Upcoming Dividend Will Be Larger Than Last Year's

The board of PNM Resources, Inc. (NYSE:PNM) has announced that it will be paying its dividend of $0.3675 on the 17th of February, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 3.0%, which is in line with the average for the industry.

View our latest analysis for PNM Resources

PNM Resources' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, PNM Resources was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 50.9% over the next year. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

PNM Resources Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from $0.58 total annually to $1.47. This means that it has been growing its distributions at 9.7% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

PNM Resources May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. However, PNM Resources' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On PNM Resources' Dividend

In summary, while it's always good to see the dividend being raised, we don't think PNM Resources' payments are rock solid. While PNM Resources is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for PNM Resources (of which 1 is a bit concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.