CMS Energy Corp. (CMS) maintains a strong dividend growth rate

CMS Energy’s (NYSE:CMS) dividend was increased by a solid 7%. Its overall yield is 3.14%. The firm started paying a dividend in 1993.

CMS Energy operates as an energy company primarily in Michigan, through three segments: Electric Utility, Gas Utility, and Enterprises. The utility company engages in the generation, purchase, and distribution of electricity throughout the State of Michigan as well was the purchase and  distribution of natural gas. The Enterprises segment engages in the independent power production and marketing activities. CMS Energy Corporation was founded in 1987 and is headquartered in Jackson, Michigan.

CMS Energy has maintained a solid three-year growth rate of dividends of 6.7 percent. CMS Energy currently ranks 11th in yield within the large cap diversified utility category. The quarterly dividend for the February payment will be $0.3325 versus the prior year rate of $0.31 per share. CMS Energy Corp. is a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on February 28, 2017, to shareholders of record at close of business on February 3, 2017. CMS Energy is currently priced at $42.33. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/3/2017 0.3325
11/2/2016 0.31
8/3/2016 0.31
5/4/2016 0.31
2/3/2016 0.31
11/4/2015 0.29
8/5/2015 0.29
5/6/2015 0.29
2/4/2015 0.29
11/5/2014 0.27
7/30/2014 0.27
4/30/2014 0.27
2/5/2014 0.27
10/30/2013 0.255
7/31/2013 0.255
5/1/2013 0.255
2/6/2013 0.255
10/31/2012 0.24
8/1/2012 0.24
5/2/2012 0.24
2/8/2012 0.24
11/2/2011 0.21
8/3/2011 0.21
5/4/2011 0.21
2/3/2011 0.21
11/3/2010 0.21
8/4/2010 0.15
5/5/2010 0.15
2/4/2010 0.15

Quantitative Analysis:

We examine CMS Energy upon our five key criteria, which include; 

Category Value Score
Dividend Yield 3.14% 129
Dividend Growth (3 to 6 year avg) 9% 227
Forward P/E 19.51 194
S&P Financial Rating BBB+ 160
Beta  0.65 50
Total Score   760

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
3.14% 6.7% 11.3% 22.7 1.86 0.30 1.90 2.67% 4.15%

Positives;

  • CMS Energy maintains an investment grade credit rating.
  • CMS Energy has maintained a three-year growth rate of dividends of 6.7 percent.
  • CMS Energy’s dividend yield is above that of the S&P 500 Index.
  • CMS Energy maintains a beta of 0.65, much lower than the average company.

Negative;

  • CMS Energy’s current dividend yield (3.14%) is below its five-year average of 3.41%.
  • CMS Energy is trading toward the top of its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

CMS Energy issued its earnings data on October 19th. CMS Energy announced net income of $186 million, or $0.67 per share, for Q3 2016and $474 million, or $1.70 per share, for the first nine months of the year.  CMS Energy management’s team raised its 2016 adjusted earnings per share guidance range to $2.00-$2.02, indicating expected performance at the high end of its plan to grow earnings per share at 5% to 7%.  Overall, it was a solid quarter for the Michigan utility company. CMS Energy also introduced 2017 earnings per share guidance at $2.13-$2.17, reflecting growth of 6% to 8%.

The firm’s natural gas business, the third-largest in the U.S. in terms of annual revenue, is a substantial growth driver for the utility firm. Capital investment is expected to continue to ramp up in 2017 and beyond making natural gas a key element to CMS Energy’s growth profile. The company plans over $6 billion in capital investments into natural gas over the next decade. Investments are also planned to up the company’s gas system which includes updating distribution lines and expanding capacity. Cost savings are also a critical component to future earnings projections. The company has had a solid history of reducing costs each year. For 2017, the firm expects to save approximately $15 million from the move from coal to gas, $20 million through the utilization of smart meters, and another $10 million from eliminating waste.  Operating cash flow is expected to be $1.65 billion in 2017, up from $1.55 in 2016.

In regard to renewable energy, it announced in 2016 that the utility firm had started operations at its second solar power plant at Western Michigan University, with over 8 acres.  This 1-megawatt solar power plan was in addition to the 3-megawatt solar power plant that opened at Grand Valley State University in April.  The utility firm also is planning to increase capacity at its Cross Winds Energy Park.  It also has  a new wind park that will be completed in 2017 in Huron County, Michigan. Consumers Energy has made significant changes to how it generates energy, closing seven coal-fired power plants this year and developing renewable energy sources in Michigan.

CMS also announced it will replace nuclear energy at Palisades with renewable forms. Entergy Corporation purchased Palisades from CMS in 2007 for a total of $380 million and entered into a power purchase agreement with CMS to sell back the plant’s output to CMS through 2022.  However, with the market changing, Entergy decided to close the Palisades nuclear power plant by October 2018.

The 811 megawatts of production generated at Palasades will be made up by CMS with an $800 million expansion at the Ludington storage plant, accelerated natural gas generation, wind, solar, and with continued energy efficiency.  CMS energy has one of the fastest growth rates within the sector. It has produced consistent 7% annual earnings and dividend growth since 2011. Its earnings have climbed from $1.36 in 2011 to a $1.89 today. The stock does trade a premium valuation versus other stocks within the industry due to its consistent high level of growth. Priced at $42.30 a share, the stock trades at 19.6 times 2017 earnings. This is above that of the S&P 500 as well. The firm yields 3.14% based upon its new dividend. Despite the premium valuation, we think that CMS is a unique utility firm with strong assets and a very capable management team.  Based on the firm’s higher than average dividend yield, strong dividend & earnings growth, and investment grade rating, CMS Energy is a member of our  Top 100 Dividend Stocks.

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CMS Energy Corp. Dividend Yield Chart (Click to enlarge)

cms2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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