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This is Why CMS Energy (CMS) is a Great Dividend Stock

Zacks Equity Research
·3 mins read

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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 -3.07% since the start of the year. The energy company is paying out a dividend of $0.41 per share at the moment, with a dividend yield of 2.68% compared to the Utility - Electric Power industry's yield of 3.58% and the S&P 500's yield of 1.65%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.63 is up 6.5% from last year. CMS Energy has increased its dividend 5 times on a year-over-year basis over the last 5 years 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%.

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.

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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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