CMS Energy (CMS) is another midsize utility that has outperformed broader utilities primarily due to its higher dividend growth. CMS Energy is a $13-billion utility holding company and operates primarily in Michigan. Along with CMS, DTE Energy (DTE) also has a significant presence in Michigan, and both CMS and DTE heavily depend on industrial sales in the state.
Over the past five years, CMS has raised its per-share dividend by 8.1%, compounded annually. CMS Energy’s dividend growth is nearly double the peer average of around 4%, compounded annually, over the same period.
CMS Energy now offers a dividend yield of 2.8%, compared with the Utilities Select Sector SPDR ETF’s (XLU) yield of 3.5%. CMS Energy’s five-year historical dividend yield comes in at ~3.2%. This might mean that CMS Energy stock’s epic ascent might have pulled its yield lower over the past few years, during which time CMS stock has nearly doubled, while XLU has risen 53%.
CMS Energy had a payout ratio of ~62% in 2016, which is close to its historical average of 62%. (Remember, the payout ratio shows a company’s profits distributed among shareholders in the form of dividends.)
CMS Energy’s earnings growth rate outpaces the industry average, and the company expects to grow ~6%–8% annually for the next few years. The company’s relatively high earnings growth rate is expected to come from capital projects over the next couple of years.
You can read about what’s happening now with broader utilities in Market Realist’s series Last Week in Utilities: How These Defensives Played Out.