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Summary The uncertainty around the Fed’s action in September seems to be the highest driver of volatility. The correction caught up with the Utilities and REITs. Opportunities are popping up. Here is my CMS buy-point. Tuesday ended up in a red territory after being green most of the day. I have written about that couple of days ago: The sell-off will continue. Here is the end of day Tuesday summary. (click to enlarge) This time it was the REITs and Utilities (highlighted in yellow circles) that led the trading’s last hour free fall. This is completely aligned with the thesis that it is all about the interest rate hike. The China slowdown has some effect on the sentiment but the approaching interest rate hike leads to a significant sell off in sectors that are sensitive to the long term interest rate. For the first time in a while the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) also suffered from a pullback on Tuesday . This makes sense as the approaching interest rate hike should lead to higher yields, but as fear has a huge psychological impact people still rush back to bonds from time to time as it is considered a safe heaven. (click to enlarge) The drops in REITs and Utilities is probably just the beginning as there is some time until the Fed will announce its decision in September. In the meanwhile some opportunities might pop up. CMS Energy Corporation CMS Energy ( CMS ) was founded in 1987 and operates in the state of Michigan. The company is more of a holding company that integrates energy companies. Its primary business operations in the fields of electric and natural gas utility, natural gas pipeline systems, and independent power generation. CMS Enterprises, through its subsidiaries and equity investments, is engaged primarily independent power production and owns power generation facilities fueled mostly by natural gas and biomass. It has three business segments: electric utility, gas utility and enterprises. In the last seven years CMS has demonstrated EPS growth and a constant dividend growth. The next graph taken from nasdaq.com illustrates the growth seen since 2008. The yearly dividend went up from $0.4 per share to $1.1 per share. This is an average of 19% over a six years period of time. The full year 2015 EPS is expected to be at the range of $1.86-1.89. This is 5-7% higher year over year. The next chart illustrates the EPS walk in 2015. It was taken from CMS Q2 earning report presentation . (click to enlarge) CMS’ dividend payout target is at 62%. This leaves the cash required for the additional capital investments that the company plans to invest over the course of the next decade. (click to enlarge) The DGR: Though CMS demonstrated a strong dividend increase in the past, based on the company’s forecast the dividend growth rate is expected to be more modest as it should be aligned with the 5-7% EPS expected growth. I feel comfortable with 5-7% growth per year but would like to make sure that my entry point is at a relatively high dividend rate. My buy-point: CMS, like the rest of the Utilities sector is going suffer in the coming weeks, until there will be more clarity regarding the Fed’s action. The stock went down below $33 per share, which based on $1.16 is 3.5% dividend rate. I would prefer to buy the stock close to its lows that supported the stock during last summer at $28 per share. This price represents 4.1% dividend yield rate. Though the stock might drop even further afterwards I believe that $28 is a good long term buy for CMS. (click to enlarge) Conclusions: The uncertainties regarding the interest rate hike will continue to take its toll, especially on high dividend rate sectors like Utilities and REITs. Long term investors should take advantage of the correction and arrange their long term investment portfolios to generate more wealth. I plan to initiate a buy in CMS at $28. Happy investing! Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CMS over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The opinions of the author are not recommendations to either buy or sell any security. Please do your own research prior to making any investment decision. Scalper1 News
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