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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 0.32%. The energy company is currently shelling out a dividend of $0.82 per share, with a dividend yield of 2.59%. This compares to the Utility - Electric Power industry's yield of 3.38% and the S&P 500's yield of 1.71%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.63 is up 6.5% 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 7.32%. 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. CMS Energy's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CMS expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $2.65 per share, representing a year-over-year earnings growth rate of 6.43%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CMS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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CMS Energy Corporation (CMS) : Free Stock Analysis Report
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