Over the past 10 years Cummins Inc. (NYSE:CMI) has been paying dividends to shareholders. The company currently pays out a dividend yield of 2.9% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Cummins in more detail.
Check out our latest analysis for Cummins
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Cummins fit our criteria?
Cummins has a trailing twelve-month payout ratio of 34%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 31% which, assuming the share price stays the same, leads to a dividend yield of 3.0%. Furthermore, EPS should increase to $15.44.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of CMI it has increased its DPS from $0.70 to $4.56 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Cummins has a yield of 2.9%, which is high for Machinery stocks but still below the market’s top dividend payers.
Next Steps:
With this in mind, I definitely rank Cummins as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for CMI’s future growth? Take a look at our free research report of analyst consensus for CMI’s outlook.
- Valuation: What is CMI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CMI is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.