Advertisement
Australia markets closed
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • AUD/USD

    0.6525
    -0.0011 (-0.17%)
     
  • OIL

    82.64
    +1.29 (+1.59%)
     
  • GOLD

    2,238.40
    +25.70 (+1.16%)
     
  • Bitcoin AUD

    108,698.88
    +2,676.88 (+2.52%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • AUD/EUR

    0.6039
    +0.0008 (+0.13%)
     
  • AUD/NZD

    1.0901
    +0.0022 (+0.20%)
     
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NASDAQ

    18,256.21
    -24.63 (-0.13%)
     
  • FTSE

    7,961.34
    +29.36 (+0.37%)
     
  • Dow Jones

    39,760.00
    -0.08 (-0.00%)
     
  • DAX

    18,493.87
    +16.78 (+0.09%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     

Be Sure To Check Out Cummins Inc. (NYSE:CMI) Before It Goes Ex-Dividend

Readers hoping to buy Cummins Inc. (NYSE:CMI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Cummins' shares on or after the 19th of May will not receive the dividend, which will be paid on the 2nd of June.

The company's next dividend payment will be US$1.45 per share, on the back of last year when the company paid a total of US$5.80 to shareholders. Last year's total dividend payments show that Cummins has a trailing yield of 2.9% on the current share price of $201.12. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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 usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Cummins paying out a modest 42% of its earnings. 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. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.

ADVERTISEMENT

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.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Cummins's earnings per share have been growing at 11% a year for the past five years. Cummins has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cummins has delivered 14% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Cummins got what it takes to maintain its dividend payments? 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. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Cummins has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Cummins has 1 warning sign we think you should be aware of.

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.