Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CMS Energy Corporation (NYSE:CMS) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 6th of February in order to be eligible for this dividend, which will be paid on the 28th of February.
CMS Energy's next dividend payment will be US$0.41 per share. Last year, in total, the company distributed US$1.63 to shareholders. Looking at the last 12 months of distributions, CMS Energy has a trailing yield of approximately 2.4% on its current stock price of $68.51. If you buy this business for its dividend, you should have an idea of whether CMS Energy's dividend is reliable and sustainable. So we need to investigate whether CMS Energy can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. CMS Energy paid out 64% of its earnings to investors last year, a normal payout level for most businesses.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see CMS Energy earnings per share are up 6.4% per annum over the last five years. Decent historical earnings per share growth suggests CMS Energy has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CMS Energy has delivered 13% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has CMS Energy got what it takes to maintain its dividend payments? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. Overall, CMS Energy looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Wondering what the future holds for CMS Energy? See what the 12 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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