PNM Resources (NYSE:PNM) Will Pay A Larger Dividend Than Last Year At $0.3875

The board of PNM Resources, Inc. (NYSE:PNM) has announced that it will be paying its dividend of $0.3875 on the 16th of February, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.

Check out our latest analysis for PNM Resources

PNM Resources' Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. 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. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to rise by 74.3% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 52% 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 dividend has gone from $0.66 total annually to $1.55. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. PNM Resources has impressed us by growing EPS at 11% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think PNM Resources is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for PNM Resources you should be aware of, and 1 of them shouldn't be ignored. Is PNM Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.