Cummins India (NSE:CUMMINSIND) Will Pay A Larger Dividend Than Last Year At ₹12.00

The board of Cummins India Limited (NSE:CUMMINSIND) has announced that it will be paying its dividend of ₹12.00 on the 8th of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 1.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Cummins India

Cummins India's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Cummins India was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 6.2% over the next year. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹11.00 total annually to ₹24.00. This implies that the company grew its distributions at a yearly rate of about 8.1% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Cummins India's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Cummins India has impressed us by growing EPS at 9.0% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Cummins India's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Cummins India has been making. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Cummins India that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.