Updated 3/6/25
CMS Energy Corporation (NYSE: CMS) is a well-established utility company that provides electricity and natural gas services across Michigan. As a regulated utility, it operates in a predictable industry, making it a solid choice for investors looking for steady dividends.
For those who prioritize reliable income over high-risk growth, CMS Energy has a lot to offer. The company has been paying dividends consistently, and its ability to generate cash flow is key to maintaining those payouts. Let’s take a closer look at whether CMS is a good fit for dividend investors.
🔑 Key Dividend Metrics
💰 Forward Dividend Yield: 3.03%
📈 5-Year Average Dividend Yield: 2.93%
📅 Dividend Growth Streak: 16+ years
🛡️ Payout Ratio: 61.86%
📆 Ex-Dividend Date: February 14, 2025
💵 Next Dividend Payment Date: February 28, 2025
💲 Annual Dividend Rate: $2.17
Dividend Overview
CMS Energy has a strong track record when it comes to dividends. With a forward yield of 3.03%, it offers investors a steady income stream. Over the past five years, the yield has averaged 2.93%, which means the current rate is slightly above its historical norm. That could suggest the stock is priced attractively for income-focused investors.
For those looking to build passive income, CMS Energy’s quarterly dividend payments provide regular cash flow. Utility stocks like this one are known for their stability, making them an appealing choice for long-term investors who want to hold onto their shares and collect dividends over time.
Dividend Growth and Safety
Dividend growth is just as important as the yield itself. CMS Energy has been steadily increasing its dividend over the years, with a growth rate of about 6-7% annually. While this isn’t the fastest-growing dividend out there, it’s a healthy and sustainable pace for a utility company.
One of the key factors in dividend safety is the payout ratio, which tells us how much of a company’s earnings are being used to pay dividends. CMS Energy’s payout ratio is currently at 61.86%. That’s a reasonable level, especially for a utility company, where stable cash flow supports high dividend payouts.
A potential concern is the company’s high debt load. The debt-to-equity ratio stands at 189.64%, which is on the higher side. While it’s common for utilities to carry significant debt due to the capital-intensive nature of their business, it’s something investors should keep an eye on. The company needs to continue generating strong cash flows to manage both debt payments and dividend distributions.
Chart Analysis
Price Action and Trend
The price action for CMS Energy has been in a steady uptrend over the past year, showing a pattern of higher highs and higher lows. The recent rally pushed the stock to a fresh high, but there was a pullback from the peak near $73, indicating some profit-taking. Despite the dip, the stock remains above both the 50-day and 200-day moving averages, a sign that the broader trend is still intact.
Moving Averages
The 50-day moving average (orange line) has been acting as dynamic support for much of the year, with prices bouncing off it multiple times. Currently, CMS is trading above both the 50-day and the 200-day moving averages, which suggests a strong uptrend is still in play. The 200-day moving average (blue line) is sloping upward, reinforcing the long-term bullish sentiment. If the stock were to pull back further, the 50-day moving average could serve as the first level of support.
Volume and Market Participation
Volume patterns reveal an increase in buying interest during recent rallies, with larger green volume bars appearing on upward moves. This suggests that demand is still strong when the stock pushes higher. There have been a few spikes in selling volume, especially near previous peaks, which may indicate some investors are locking in profits. However, overall volume levels appear steady, supporting the stock’s trend.
Relative Strength Index (RSI)
The RSI is sitting at 66, which is nearing overbought territory but not quite there yet. This suggests that while momentum remains strong, there could be some short-term cooling off before another push higher. If RSI moves above 70, it could indicate that the stock is becoming overextended, increasing the risk of a short-term pullback. A slight decline in RSI without a major price drop would be a healthy sign, allowing the stock to consolidate before potentially resuming its uptrend.
Recent Candle Behavior
The last five candlesticks show a mix of bullish and cautious sentiment. The most recent candle has a small body with a long upper wick, which suggests that buyers pushed the price higher but faced resistance near the recent highs. This could indicate some short-term hesitation in the market. Prior to this, there was a strong run-up in price, followed by a couple of candles with long wicks on both ends, which can signal indecision. If the next few candles show continued hesitation, a short-term pullback to a support level could be in play.
Analyst Ratings
📈 Upgrades
Jefferies recently initiated coverage on CMS Energy with a Buy rating and set a price target of $76. Analysts highlighted the company’s strong operational performance and its commitment to shareholder value through steady dividend growth and infrastructure investments. The firm also pointed to CMS Energy’s ability to manage costs efficiently while maintaining service reliability, which strengthens its long-term earnings potential.
Another upgrade came from a different investment firm that raised its rating from Neutral to Overweight, citing the company’s stable cash flow and strategic positioning in the utility sector. The upgrade was driven by CMS Energy’s proactive approach to energy transition, particularly in renewable investments, which aligns well with industry trends and regulatory incentives.
📉 Downgrades
On the other hand, Guggenheim recently downgraded CMS Energy from Buy to Neutral, adjusting its price target from $77 to $69. Analysts expressed concerns over regulatory challenges that could pressure the company’s future earnings. They also noted potential headwinds in the broader utility sector, such as rising borrowing costs and uncertainty surrounding rate approvals.
Another downgrade came from an institution that shifted its rating from Overweight to Equal Weight, citing valuation concerns. With the stock trading near its recent highs, analysts believe that much of the near-term growth is already priced in, making it less attractive at current levels. They suggested that a more favorable entry point could arise if market conditions shift or if there’s a pullback in the stock.
🎯 Consensus Price Target
The latest consensus among analysts puts CMS Energy’s 12-month price target at $73.08, with estimates ranging from $68 to $78. This reflects a modest upside potential from current levels, though opinions remain split on whether the stock has significant room to run in the near term.
These mixed ratings highlight the balance between CMS Energy’s strengths—such as dividend stability and regulatory backing—against risks like sector-wide pressures and potential valuation concerns.
Earnings Report Summary
CMS Energy wrapped up the year with a solid earnings report, continuing its streak of steady financial performance. The company reported earnings per share (EPS) of $3.33, up from $3.01 last year, showing a healthy increase. Adjusted EPS came in slightly higher at $3.34, compared to $3.11 in the previous year. These numbers reflect the company’s ability to maintain strong operations despite broader economic challenges.
Dividend investors had something to smile about as well. CMS Energy announced an 11-cent increase in its annual dividend, bringing it up to $2.17 for 2025. This marks the 19th straight year of dividend growth, reinforcing its reputation as a reliable income stock. On top of that, the company raised its earnings guidance for 2025, now expecting adjusted EPS between $3.54 and $3.60, slightly higher than its previous forecast. It’s also sticking to its long-term growth target of 6% to 8%, which shows confidence in its financial outlook.
Beyond the numbers, CMS Energy continued making major investments in its infrastructure. Through its Reliability Roadmap initiative, the company put a strong focus on improving the electric grid, making sure service interruptions were resolved faster. That effort is paying off—93% of customers who experienced outages had their power restored within 24 hours, up from 87% the year before.
The company also played a role in boosting Michigan’s economy. CMS Energy secured commitments for over 360 megawatts of new energy load, thanks to economic development projects that helped create new jobs and attract investment to the state.
Overall, CMS Energy’s latest earnings report highlights steady financial growth, a continued commitment to rewarding shareholders, and a focus on making its energy infrastructure more reliable. The company’s long-term outlook remains strong, with ongoing investments and a disciplined financial strategy paving the way for future growth.
Financial Health and Stability
For dividend investors, financial stability is key. CMS Energy’s revenue over the past twelve months was $7.51 billion, with an operating cash flow of $2.37 billion. These numbers show that the company is generating solid cash inflows, which is critical for maintaining and growing dividends.
Profit margins also look healthy, with a net profit margin of 13.35% and an operating margin of 23.48%. This means the company is running efficiently and is able to turn a decent portion of its revenue into profit.
However, the balance sheet does present some risks. CMS Energy has only $103 million in cash compared to a total debt of $16.59 billion. The current ratio, which measures short-term liquidity, is at 0.79. That’s below the ideal level of 1.0, meaning the company doesn’t have enough short-term assets to cover its short-term liabilities.
Return on equity (ROE) stands at 11.23%, indicating that the company is generating solid returns for shareholders. However, a portion of that return is driven by debt. Investors should be aware of the company’s reliance on borrowing and how it could impact future financial flexibility.
Valuation and Stock Performance
CMS Energy is currently trading at $73.06, showing a gain of 1.98% in the last trading session. The stock’s price-to-earnings (P/E) ratio sits at 21.51, which is in line with other utility stocks. Looking ahead, the forward P/E ratio is 19.92, suggesting that the stock is fairly valued based on projected earnings.
Other valuation metrics provide additional insight:
- Price-to-book ratio: 2.67
- PEG ratio (5-year expected growth): 2.59
- Enterprise value-to-EBITDA: 12.40
The stock has been trading within a 52-week range of $56.61 to $75.06, meaning it’s currently closer to its upper limit. Its 50-day moving average is $68.28, while the 200-day moving average is $66.57. This suggests the stock has been on an upward trend recently.
For investors considering an entry point, CMS may not be a bargain at its current price. However, if there’s a market pullback, it could provide a more attractive buying opportunity.
Risks and Considerations
High Debt Load
CMS Energy carries a significant amount of debt, which could become more of an issue if interest rates remain high. The cost of refinancing debt may increase, potentially limiting the company’s ability to raise dividends at its current pace.
Regulatory Risks
As a regulated utility, CMS Energy is subject to government oversight. Changes in energy regulations, rate approvals, or environmental policies could impact profitability. While regulation provides stability, it also limits the company’s ability to rapidly increase earnings.
Interest Rate Sensitivity
Utility stocks tend to perform better when interest rates are low. When rates rise, income-focused investors often shift toward bonds, which can put pressure on utility stock prices. Rising rates can also increase borrowing costs, affecting profitability.
Limited Growth Potential
Utility stocks aren’t known for rapid growth, and CMS Energy is no exception. The company’s PEG ratio of 2.59 suggests that future earnings growth may be modest. While it remains a stable dividend payer, investors looking for high capital appreciation may want to explore other options.
Final Thoughts
CMS Energy is a steady, reliable dividend payer with a long history of rewarding shareholders. Its 3.03% yield, consistent dividend increases, and stable cash flows make it an appealing choice for conservative investors who prioritize income.
That said, the company’s high debt levels, regulatory risks, and moderate growth outlook are important considerations. CMS isn’t a high-growth stock, but it remains a dependable option in the utility sector for those seeking stability.
For long-term dividend investors, CMS Energy is a stock worth holding. It provides a combination of income, modest dividend growth, and defensive positioning in the market. If the stock experiences a dip, it could become even more attractive for those looking to lock in a solid yield for years to come.
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