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Are You Looking for a High-Growth Dividend Stock? CMS Energy (CMS) Could Be a Great Choice

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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.

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 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 - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -6.8%. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 3.06%. In comparison, the Utility - Electric Power industry's yield is 3.26%, while the S&P 500's yield is 1.45%.

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 6.84%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. CMS Energy's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for CMS for this fiscal year. The Zacks Consensus Estimate for 2021 is $2.85 per share, representing a year-over-year earnings growth rate of 6.74%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 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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