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Why CMS Energy (CMS) is a Great Dividend Stock Right Now

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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. 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

CMS Energy (CMS) is headquartered in Jackson, and is in the Utilities sector. The stock has seen a price change of -1.26% since the start of the year. The energy company is currently shelling out a dividend of $0.44 per share, with a dividend yield of 2.89%. This compares to the Utility - Electric Power industry's yield of 3.32% and the S&P 500's yield of 1.37%.

Taking a look at the company's dividend growth, its 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 7.02%. 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 56%. This means it paid out 56% 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 $2.73 per share, which represents a year-over-year growth rate of 2.25%.

Bottom Line

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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that CMS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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