$73.18
$76.33
bear $73.18
base $76.33
bull $76.33
margin of safety $45.00
market price* $69.75
What you own: these are Public Service Company of New Mexico's 1965 Series 4.58% Cumulative Preferred Shares - 115,293 shares with a $100 stated value (about $11.5 million in total). Each share pays a fixed $4.58 a year, forever, with no maturity date. Unpaid dividends accumulate and must be paid before PNM's common shareholder receives anything, and the shares rank ahead of PNM's common equity in a liquidation. PNM may redeem them at any time at $102 plus accrued dividends; holders cannot force a redemption, and the shares cannot be converted. PNM is the regulated electric utility serving Albuquerque, Santa Fe and much of New Mexico, owned entirely by TXNM Energy. TXNM agreed in May 2025 to be acquired by Blackstone Infrastructure for $61.25 per common share; the preferred shares are not part of that deal and stay outstanding at PNM. How secure is the payment: the whole issue costs PNM about $528,000 a year. PNM earned $105.5 million in 2025, $208.3 million in 2024 and $54.7 million in 2023 (a year hit by $70.8 million of regulatory write-offs), so even the weakest year covered the preferred dividend about 100 times. Below the preferred sits $2.40 billion of PNM common equity that would absorb losses first. PNM has paid this dividend every year. Ahead of the preferred sit about $3.04 billion of PNM borrowings at the end of 2025 ($178.8 million short-term, $302.5 million due within a year, $2.56 billion long-term, of which about $332 million is securitized bonds repaid by a dedicated customer charge for the San Juan coal plant retirement). PNM is rated investment grade (Moody's Baa2 issuer rating); S&P rates the preferred BB+. An important caveat: measured strictly as cash generated after all capital spending, PNM does not fund itself. Operating cash flow before working-capital swings was $409 million in 2025, but plant spending was $585 million, and because regulated revenue lags new investment almost all of that spending counts as upkeep under our method. That leaves owner earnings negative in each of the last three years (about -$131 million in 2025, -$209 million in 2024, -$284 million in 2023), and still negative before $112 million of 2025 interest. The gap is filled with new debt and equity from the parent ($123 million in 2025). This is normal for a utility in a heavy building cycle - the investment earns an allowed return through future rates - but it means PNM depends on lenders and its owner, and it is the main reason the bear case exists. It does not threaten a $528,000 dividend in ordinary conditions. Valuation: because the payment is fixed, there is no growth to credit in any case; the most recent year's improvement in PNM's cash generation does not change what the preferred receives. We value the stream of $4.58 payments at a flat 6% and carry the risk in the cases. Base ($76.33): PNM keeps paying $4.58 a year indefinitely, supported by its regulated New Mexico franchise, its long payment record and an equity cushion more than 200 times the size of the issue. Bear ($73.18): a severe, disclosed risk materialises - PNM itself states it remains exposed to wildfires outside its control and to large regulatory disallowances, and it relies on outside funding - forcing a five-year suspension of all dividends. Because the shares are cumulative, the $22.90 of arrears is paid when dividends resume, so the loss is mainly the time value of the delay. A loss of principal would require PNM's entire $2.4 billion common equity to be wiped out first, which we do not regard as a 10th-percentile outcome. Bull ($76.33): the same as the base. A fixed coupon has no upside from the business doing well. The one route to more is a redemption at $102 - possible if, after the Blackstone deal closes, the owners want to retire this small public security - but PNM has disclosed no such plan and has left the 4.58% shares outstanding for decades because they are cheap capital, so we do not count it. Change since our previous analysis: we previously valued these shares at $41.64 / $50.89 / $61.07 by applying different required yields (7.5% to 11%) to the same payments. We now value all securities at a single 6% rate and express risk only through what could actually happen to the payments. Since the payment risk is low, the estimate rises substantially; the risk that the market keeps demanding a higher yield is now handled in the margin-of-safety price instead. Margin-of-safety price ($45): the shares pay a fixed amount and trade very thinly, so a 20% annual return has to come from a price low enough that the dividend plus an eventual share price near our $76 value reaches that target over a realistic holding period. The price assumes roughly five years for the share price to return to value; on that assumption, $45 implies about 20% a year (a 10.2% dividend yield plus the gain). At this price the dividend alone implies a yield above 10% a year on a well-covered payment. What could make this wrong: a catastrophic wildfire or regulatory loss large enough to stop PNM paying any dividends for many years; a change in how PNM is funded or regulated after the private-equity acquisition; and the possibility that after the deal PNM stops filing public reports, which would make this already illiquid security harder to follow and trade. The New Mexico commission's review of the Blackstone deal was paused in mid-2026 pending a compliance report, and the deal deadline was extended to May 31, 2027.