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Cummins Inc. (NYSE:CMI) has announced that it will be increasing its periodic dividend on the 7th of September to $1.68, which will be 7.0% higher than last year's comparable payment amount of $1.57. This makes the dividend yield 2.5%, which is above the industry average.
Check out our latest analysis for Cummins
Cummins' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Cummins' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 17.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.
Cummins Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $2.00 in 2013, and the most recent fiscal year payment was $6.28. This means that it has been growing its distributions at 12% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Cummins has impressed us by growing EPS at 26% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We Really Like Cummins' Dividend
Overall, a dividend increase is always good, and we think that Cummins is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Cummins that investors should know about before committing capital to this stock. Is Cummins not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.