Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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
CMS Energy (CMS - Free Report) is headquartered in Jackson, and is in the Utilities sector. The stock has seen a price change of 4.04% since the start of the year. The energy company is currently shelling out a dividend of $0.36 per share, with a dividend yield of 2.91%. This compares to the Utility - Electric Power industry's yield of 3.24% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $1.43 is up 7.5% 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 7.20%. 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 2018 is $2.34 per share, with earnings expected to increase 7.83% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 have to be mindful 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).