Cummins Inc's Dividend Analysis
Assessing the Sustainability of Cummins Inc's Dividend Payouts
Cummins Inc (NYSE:CMI) recently announced a dividend of $1.68 per share, payable on 2024-03-07, with the ex-dividend date set for 2024-02-22. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into Cummins Inc's dividend performance and assess its sustainability.
What Does Cummins Inc Do?
This Powerful Chart Made Peter Lynch 29% A Year For 13 Years
How to calculate the intrinsic value of a stock?
Cummins is the top manufacturer of diesel engines used in commercial trucks, off-highway equipment, and railroad locomotives, in addition to standby and prime power generators. The company also sells powertrain components, which include transmissions, turbochargers, aftertreatment systems, and fuel systems. Cummins is in the unique position of competing with its primary customers, heavy-duty truck manufacturers, who make and aggressively market their own engines. Despite robust competition across all its segments and increasing government regulation of carbon emissions, Cummins has maintained its leadership position in the industry.
A Glimpse at Cummins Inc's Dividend History
Cummins Inc has maintained a consistent dividend payment record since 1986. Dividends are currently distributed on a quarterly basis. Cummins Inc has increased its dividend each year since 1997. The stock is thus listed as a dividend aristocrat, an honor that is given to companies that have increased their dividend each year for at least the past 27 years. Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Cummins Inc's Dividend Yield and Growth
As of today, Cummins Inc currently has a 12-month trailing dividend yield of 2.51% and a 12-month forward dividend yield of 2.60%. This suggests an expectation of increased dividend payments over the next 12 months.
Over the past three years, Cummins Inc's annual dividend growth rate was 7.20%. Extended to a five-year horizon, this rate increased to 7.70% per year. And over the past decade, Cummins Inc's annual dividends per share growth rate stands at 10.00%.
Based on Cummins Inc's dividend yield and five-year growth rate, the 5-year yield on cost of Cummins Inc stock as of today is approximately 3.64%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-12-31, Cummins Inc's dividend payout ratio is 1.27, which may suggest that the company's dividend may not be sustainable.
Cummins Inc's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Cummins Inc's profitability 9 out of 10 as of 2023-12-31, suggesting good profitability prospects. The company has reported positive net income for each of year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Cummins Inc's growth rank of 9 out of 10 suggests that the company's growth trajectory is good relative to its competitors.
Revenue is the lifeblood of any company, and Cummins Inc's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Cummins Inc's revenue has increased by approximately 21.50% per year on average, a rate that outperforms approximately 82.9% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Cummins Inc's earnings increased by approximately -24.20% per year on average, a rate that outperforms approximately 14.11% of global competitors.
The company's 5-year EBITDA growth rate of -11.90%, which outperforms approximately 12.3% of global competitors, also contributes to the overall perspective on its growth.
Next Steps
In conclusion, while Cummins Inc's dividend payments and growth rate are commendable, the high payout ratio raises questions about the long-term sustainability of these dividends. However, Cummins Inc's strong profitability and growth metrics provide some reassurance for the future. As value investors consider the prospects of Cummins Inc, they must weigh the potential for continued dividend increases against the financial fundamentals that support such payouts. Can Cummins Inc continue to deliver value to shareholders through dividends without compromising its financial health? This is a question that investors will need to monitor closely. For those looking to expand their portfolio with high-dividend yield stocks, GuruFocus Premium users can utilize the High Dividend Yield Screener for informed investment decisions.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
