Cummins India (NSE:CUMMINSIND) Has Announced That It Will Be Increasing Its Dividend To ₹33.50

Cummins India Limited's (NSE:CUMMINSIND) dividend will be increasing from last year's payment of the same period to ₹33.50 on 7th of September. This will take the annual payment to 1.6% of the stock price, which is above what most companies in the industry pay.

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Cummins India's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Cummins India was paying out quite a large proportion of both earnings and cash flow, with the dividend being 99% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 38.6%. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Cummins India

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ₹13.00, compared to the most recent full-year payment of ₹51.50. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Cummins India has seen EPS rising for the last five years, at 23% per annum. However, Cummins India isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Our Thoughts On Cummins India's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Cummins India's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Cummins India is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Cummins India that investors need to be conscious of moving forward. Is Cummins India not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.