All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 tha t 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
Headquartered in Jackson, CMS Energy (CMS) is a Utilities stock that has seen a price change of 5.02% so far this year. The energy company is paying out a dividend of $0.36 per share at the moment, with a dividend yield of 2.93% compared to the Utility - Electric Power industry's yield of 3.06% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.53 is up 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 6.95%. 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%, meaning 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 2019 is $2.51 per share, which represents a year-over-year growth rate of 7.73%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. 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).