Why CMS Energy (CMS) is a Top Dividend Stock for Your Portfolio

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 6.87% 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 2.67%. This compares to the Utility - Electric Power industry's yield of 3.1% and the S&P 500's yield of 1.27%.

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 7.11%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, CMS Energy's payout ratio is 57%, which means it paid out 57% 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 $2.90 per share, which represents a year-over-year growth rate of 8.61%.

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.

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. 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).

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