Core Insights - TXNM Energy has a 2.8% dividend yield, but its sustainability is questioned due to negative free cash flow and reliance on debt for dividend payments [1][2] Dividend Profile - TXNM Energy paid $140.3 million in dividends in 2024, with a quarterly payout increase from $0.4075 to $0.4225, marking a 3.7% rise [1] - The company has a 27-year history of uninterrupted dividend payments, with a total growth of 92% in dividends from $0.22 in 2016 to $0.4225 in early 2026, reflecting a compound annual growth rate of approximately 6.8% [1] - The current stock price of $59.39 results in an annualized dividend of $1.63, yielding 2.76%, slightly above the Utilities Select Sector SPDR ETF's yield of 2.75% [1] Cash Flow Issues - TXNM generated $508.2 million in operating cash flow in 2024 but had negative free cash flow of $738.9 million due to $1.25 billion in capital expenditures [1] - The company has consistently reported negative free cash flow from 2019 to 2024, with a free cash flow coverage ratio of only 0.19x for dividends [1] - Capital expenditures have increased significantly, from 122% of operating cash flow in 2019 to 245% in 2024, driven by infrastructure investments [1] Earnings Quality - TXNM reported a net income of $242.7 million in 2024, a 174.6% increase from $88.3 million in 2023, with net margin improving from 4.6% to 12.3% [1] - The payout ratio based on Q4 2025's GAAP EPS of $1.22 exceeds 133%, indicating a troubling reliance on earnings for dividend payments [1] - Interest expenses rose to $228.1 million in 2024, consuming 11.6% of revenue, which competes with dividend payments for available cash [1] Acquisition Context - TXNM is undergoing a $11.5 billion acquisition by Blackstone, pending regulatory approvals, which could impact dividend policies post-acquisition [1][2] - The acquisition has received shareholder and state regulatory approval, but federal approvals are still pending, creating uncertainty for investors [1] Balance Sheet Strength - TXNM's shareholders' equity increased by 28.76% year-over-year to $3.18 billion, with total assets reaching $11.68 billion, up 7.67% [2] - The debt-to-equity ratio stands at approximately 2.66x, which is manageable for regulated utilities given their predictable cash flows [2] Total Return Performance - TXNM shares have appreciated by 22.03% over the past year, with five-year and ten-year returns of 43.19% and 150.11%, respectively, indicating strong capital gains [2] - The price performance reflects optimism about growth prospects in Texas, driven by demographic growth and electricity demand [2] Conclusion - While TXNM has a strong historical dividend payment record, current financial challenges raise concerns about the sustainability of its dividend, particularly given its reliance on external financing and negative free cash flow [2]
TXNM Energy's 2.8% Yield: Reliable Utility or Risky Bet?