Why CMS Energy (CMS) is a Top Dividend Stock

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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 7.5% since the start of the year. Currently paying a dividend of $2.84 per share, the company has a dividend yield of 58%. In comparison, the Utility - Electric Power industry's yield is 7.83%, while the S&P 500's yield is 0.36%.

Looking at dividend growth, the company's current annualized dividend of $3.22 is up 7.2% from last year. In the past five-year period, CMS Energy has increased its dividend 7.50 times on a year-over-year basis for an average annual increase of 5%. 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 6.36%, meaning it paid out 6.36% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for CMS for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.43 per share, representing a year-over-year earnings growth rate of 2.51%.

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. But, not every company offers 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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