Zacks_Analysts' Blog : CMS Energy Raises Dividend - Analyst Blog

CMS Energy Corporation (CMS) has increased its dividend by 14%, bringing the annualized dividend to 96 cents per share from the previous payout of 84 cents per share. The 12 cent increase in the annual dividend reflects successful execution of the company's business strategy.

The company will now pay a quarterly dividend of 24 cents per share compared with the prior quarterly dividend of 21 cents per share. The announced first quarter dividend will be paid on February 29, 2012, to shareholders of record at the close of business on February 10, 2012.

The company uses cash flows generated from operations and external financing transactions to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund other obligations. Management has rewarded shareholders by returning a substantial portion of the free cash flow through incremental dividends over the past three years. It made the last quarterly 6 cent dividend increase in August 2010 from 15 cents to 21 cents. With the current increase, CMS Energy's payout ratio falls in line with the utility industry average.

In the long term, the company expects to maintain an annual earnings growth in the range of 5% to 7%, while holding the base rate increases for customers at or below the rate of inflation for the next five years. We believe that the company presents a strong growth story given its stable electric and gas utility operations, favorable regulatory policies in Michigan, higher rates, strong balance sheet, and incremental dividend.

The company also indicated that it plans to invest $6.6 billion in its operations through 2016. Besides, it is making substantial investments in renewable energy, environmental quality, energy efficiency, and natural gas infrastructure, which is not only providing value to customers but is also creating jobs and improving the state's economy.

But we believe these positives continue to be restrained by the unfavorable macro backdrop, lower demand for electricity and pending regulatory cases. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

On February 23, 2012, CMS Energy is expected to release its fourth quarter and fiscal 2011 results. The Zacks Consensus Estimates for fourth quarter 2011 and fiscal year 2011 are currently at 15 cents per share and $1.46 per share, respectively. Recently, its peer, American Electric Power Company Inc. (AEP) reported its fourth quarter and fiscal 2011 results. In the reported quarter, the company clocked ongoing earnings of 40 cents per share, in line with the Zacks Consensus Estimate. The company’s results, however, came above the year-ago quarterly earnings of 38 cents per share.

Jackson, Michigan-based CMS Energy Corporation is the holding company of Consumers Energy Company (Consumers) and CMS Enterprises Company (Enterprises). Consumers is an electric and gas utility that provides electricity and natural gas to Michigan’s residents, and serves customers in all 68 counties of Michigan’s Lower Peninsula. Enterprises, through its subsidiaries and equity investments, is engaged primarily in independent power production.