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CMS Energy:
Executing Growth at a Good Price

Utility strong is what you get with Conservative Holding CMS Energy (NYSE: CMS). The stock’s 10-year compound annual return is a solid 10.5 percent. And it’s 15.4 percent for the last 21 years – which began with a management switch and refocus on boosting efficiency, cutting debt and staying on the same page with Michigan regulators, says income-investing expert Roger Conrad, editor of Conrad’s Utility Investor newsletter.

That’s been the formula for success ever since. In early February, CMS released 2023 results that topped the company’s recently raised targets. Management boosted the mid-point of the 2024 earnings guidance range to $3.32 per share, affirming expected annual growth of 6 to 8 percent through 2028 “with continued confidence toward the high end of the range. The company also raised dividends by 5.7 percent, the same rate of growth as in 2023 and an increase of 90.7 percent from ten years ago.

And that’s exactly what investors should expect from CMS Energy the next 10 years and beyond. The primary driver for revenue is rate base growth under Michigan’s new and very supportive energy law.

Over the next five years, the company plans to spend $17 billion on increased renewable energy generation, grid modernization/electrification and replacing pipelines and mains on its natural gas distribution system. It will also see rising earnings from the Northstar renewable energy business, which expects 16 to 18 cents earnings per share this year.

On the cost side, CMS continues to target investments that reduce operating and maintenance expense. These savings are passed onto customers, which in turn makes rate increases for investment more palatable to Michigan regulators: Officials approved a $92.9 million boost last month, based on a solid 9.9 percent return on equity. They also signed off on a 2-year “investment recovery mechanism” that will allow earnings benefit without a formal rate case, as well as an undergrounding project for storm hardening.

As for balance sheet, credit rater Moody’s noted in March the company’s progress paring down once hefty parent level debt. The company is now able to securitize extraordinary expenses, allowing them to be passed on to customers gradually while keeping the utility whole. And debt maturities are well staggered. Buy CMS up to 68.

Editor’s Note: Roger Conrad has provided in-depth analysis of the utility sector to individual and institutional investors for more than 20 years. Conrad's Utility Investor is your complete guide to building a lifelong income stream from stocks that provide essential services. For further information or to download a sample issue Click Here.

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