It might not be obvious, but our lives depend on moving heavy loads and objects from one place to another.
Cummins (CMI), a global leader in the manufacture of engines, and their related products and services are essential to that activity. Let’s head out on the highway and check out CMI from a dividend stock analysis perspective.
CMI designs, manufactures, sells and services diesel and alternative fuel engines; diesel and alternative-fueled electrical generator sets; as well as related components and technology.
CMI is paying an annualized dividend of $4.32 per share, a 3.3% yield at the recent price of $131 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
|1 Year||3 Years||5 Years||7 Years|
Dividends per share have grown rapidly over the past 7 years, but growth has slowed more recently.
EARNINGS, DIVIDENDS AND PAYOUT RATIO
Earnings per share peaked in 2011 and then stabilized in the $8 per share area over the past several years. Analysts are projecting EPS of nearly $10 per share in 2017. CMI operates in more economically sensitive sectors than most dividend paying stocks.
Earnings growth has been challenged due to a slowdown in demand from the mining sector as well as currency fluctuations from a stronger US dollar. Dividend growth has come at the expense of a rising payout ratio, 48% in 2016. I would expect low to mid-single digit percent annual increases in the dividend over the next several years as a basis for reducing the payout ratio.
VALUATION & CONCLUSION
CMI’s PE ratio has fluctuated around 15 much of the past several years and currently is about 19. CMI looks a little pricey at current levels. I would consider adding to my position at prices below $140.
Disclosure & Disclaimer