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TXNM Energy, Inc. (NYSE:TXNM) will increase its dividend from last year's comparable payment on the 14th of February to $0.4075. The payment will take the dividend yield to 3.4%, which is in line with the average for the industry.
See our latest analysis for TXNM Energy
TXNM Energy's Projected Earnings Seem Likely To Cover Future Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, TXNM Energy's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.
The next year is set to see EPS grow by 68.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
TXNM Energy Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $0.74 total annually to $1.63. This means that it has been growing its distributions at 8.2% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
TXNM Energy 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, TXNM Energy has only grown its earnings per share at 3.3% per annum over the past five years. Slow growth and a high payout ratio could mean that TXNM Energy has maxed out the amount that it has been able to pay to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.
TXNM Energy's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think TXNM Energy will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. 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. For example, we've identified 3 warning signs for TXNM Energy (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.