In a bid to boost shareholder value, Cummins Inc. (CMI Quick QuoteCMI - Free Report) has declared a 5.1% hike in its quarterly cash dividend to $1.025 per share from the prior payout of 97.5 cents.

The new dividend will be paid on Sep 1, to shareholders on record as of Aug 22, 2016. The increased dividend implies an annual yield of 3.4%, based on the company’s closing share price of $118.98 as of Jul 12.

This dividend hike reflects management’s confidence in the company’s overall business.  In fact, higher dividend is not a new phenomenon at Cummins. In Jul 2015, the company’s board of directors approved a 25% increase in its quarterly dividend to 97.5 cents per share from 78 cents paid earlier.

Cummins has a strong financial position and promising long-term business prospects, which allow it to effectively deploy capital. In first-quarter 2016, the company’s net operating cash flow increased to $263 million from $173 million in the same period a year ago. Its strong financial position also facilitates share repurchases.

Cummins is focused on enhancing shareholder value by pursuing aggressive share repurchases and increasing dividend payouts. The company returned $1.5 billion to shareholders through dividends and share repurchases in 2015, and $745 million in first-quarter 2016. During the first quarter, it repurchased 4.9 million shares under its $500 million accelerated share repurchase program.

The company also paid dividends of $170 million in the quarter, up from $140 million a year ago. This is consistent with Cummins’ plans to return 75% of its full-year operating cash flow to shareholders this year in the form of share repurchases and dividends.

CUMMINS INC Price

CUMMINS INC Price | CUMMINS INC Quote

Cummins currently carries a Zacks Rank #3 (Hold).

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