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TXNM Energy, Inc. (NYSE:TXNM) has announced that it will be increasing its periodic dividend on the 14th of February to $0.4075, which will be 5.2% higher than last year's comparable payment amount of $0.388. Based on this payment, the dividend yield for the company will be 3.1%, which is fairly typical for the industry.
View our latest analysis for TXNM Energy
TXNM Energy's Future Dividend Projections Appear Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. 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. We think that this practice can make the dividend quite risky in the future.
Looking forward, earnings per share is forecast to rise by 68.4% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 51% which brings it into quite a comfortable range.
TXNM Energy Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from $0.74 total annually to $1.55. This means that it has been growing its distributions at 7.7% per annum over that time. 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.
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. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think TXNM Energy will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for TXNM Energy (1 doesn't sit too well with us!) 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.