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Shares of Cummins Inc. (NYSE:CMI) will begin trading ex-dividend in 2 days. To qualify for the dividend check of US$1.14 per share, investors must have owned the shares prior to 21 February 2019, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Should you diversify into Cummins and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Cummins fare?
The current trailing twelve-month payout ratio for the stock is 34%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CMI’s payout to remain around the same level at 31% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.1%. Furthermore, EPS should increase to $15.44.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of CMI it has increased its DPS from $0.70 to $4.56 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes CMI a true dividend rockstar.
Relative to peers, Cummins generates a yield of 2.9%, which is high for Machinery stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, Cummins ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three relevant aspects you should further research:
- 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 email@example.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. On rare occasion, data errors may occur. Thank you for reading.