Yahoo Finance Here's What We Like About Cummins' (NYSE:CMI) Upcoming Dividend
Cummins Inc. (NYSE:CMI) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Cummins' shares before the 18th of May in order to be eligible for the dividend, which will be paid on the 1st of June.
The company's upcoming dividend is US$1.57 a share, following on from the last 12 months, when the company distributed a total of US$6.28 per share to shareholders. Looking at the last 12 months of distributions, Cummins has a trailing yield of approximately 2.9% on its current stock price of $217.25. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Cummins
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Cummins paid out a comfortable 35% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Cummins has grown its earnings rapidly, up 24% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cummins has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Cummins worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Cummins paid out less than half its earnings and a bit over half its free cash flow. Cummins looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Cummins has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for Cummins that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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