Cummins (NYSE:CMI) Has Announced That It Will Be Increasing Its Dividend To $1.82
Cummins Inc. (NYSE:CMI) will increase its dividend on the 5th of September to $1.82, which is 8.3% higher than last year's payment from the same period of $1.68. This will take the dividend yield to an attractive 2.4%, providing a nice boost to shareholder returns.
Check out our latest analysis for Cummins
Cummins' Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Cummins' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 75.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.
Cummins Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $2.50, compared to the most recent full-year payment of $6.72. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Cummins hasn't seen much change in its earnings per share over the last five years.
Our Thoughts On Cummins' Dividend
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Cummins that investors need to be conscious of moving forward. 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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