Advertisement
U.S. markets close in 30 minutes
  • S&P 500

    5,264.53
    +16.04 (+0.31%)
     
  • Dow 30

    39,867.16
    +107.08 (+0.27%)
     
  • Nasdaq

    16,405.32
    +5.80 (+0.04%)
     
  • Russell 2000

    2,124.18
    +9.83 (+0.47%)
     
  • Crude Oil

    83.10
    +1.75 (+2.15%)
     
  • Gold

    2,241.70
    +29.00 (+1.31%)
     
  • Silver

    24.97
    +0.21 (+0.86%)
     
  • EUR/USD

    1.0791
    -0.0039 (-0.36%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2623
    -0.0015 (-0.12%)
     
  • USD/JPY

    151.4060
    +0.1600 (+0.11%)
     
  • Bitcoin USD

    70,708.30
    +1,952.47 (+2.84%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Why Cummins (CMI) is a Great Dividend Stock Right Now

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Cummins in Focus

Based in Columbus, Cummins (CMI) is in the Auto-Tires-Trucks sector, and so far this year, shares have seen a price change of 4.77%. Currently paying a dividend of $1.35 per share, the company has a dividend yield of 2.27%. In comparison, the Automotive - Internal Combustion Engines industry's yield is 0.75%, while the S&P 500's yield is 1.37%.

Looking at dividend growth, the company's current annualized dividend of $5.40 is up 2.2% from last year. In the past five-year period, Cummins has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.31%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Cummins's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, CMI expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $16.21 per share, with earnings expected to increase 34.97% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CMI is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Cummins Inc. (CMI) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.

Advertisement