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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
CMS Energy in Focus
Based in Jackson, CMS Energy (CMS) is in the Utilities sector, and so far this year, shares have seen a price change of 2.64%. Currently paying a dividend of $0.44 per share, the company has a dividend yield of 2.78%. In comparison, the Utility - Electric Power industry's yield is 3.23%, while the S&P 500's yield is 1.29%.
In terms of dividend growth, the company's current annualized dividend of $1.74 is up 6.7% from last year. Over the last 5 years, CMS Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.11%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, CMS Energy's payout ratio is 57%, which means it paid out 57% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CMS expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $2.88 per share, with earnings expected to increase 7.87% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CMS is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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CMS Energy Corporation (CMS) : Free Stock Analysis Report
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