The board of CMS Energy Corporation (NYSE:CMS) has announced that it will pay a dividend of $0.515 per share on the 30th of August. Despite this raise, the dividend yield of 3.3% is only a modest boost to shareholder returns.
Check out our latest analysis for CMS Energy
CMS Energy's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, CMS Energy's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS is forecast to expand by 19.3%. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.
CMS Energy Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $1.02, compared to the most recent full-year payment of $2.06. This works out to be a compound annual growth rate (CAGR) of approximately 7.3% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend Has Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. CMS Energy has seen EPS rising for the last five years, at 7.6% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On CMS Energy's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for CMS Energy you should be aware of, and 1 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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About NYSE:CMS
Proven track record average dividend payer.
