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This is Why Cummins (CMI) is a Great Dividend Stock
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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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
Cummins (CMI - Free Report) is headquartered in Columbus, and is in the Auto-Tires-Trucks sector. The stock has seen a price change of 15.01% since the start of the year. The engine maker is paying out a dividend of $1.35 per share at the moment, with a dividend yield of 2.07% compared to the Automotive - Internal Combustion Engines industry's yield of 0.61% and the S&P 500's yield of 1.39%.
In terms of dividend growth, the company's current annualized dividend of $5.40 is up 2.2% from last year. Cummins has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.45%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Cummins's payout ratio is 45%, which means it paid out 45% 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 $13.97 per share, with earnings expected to increase 16.32% from the year ago period.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).
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This is Why Cummins (CMI) is a Great Dividend Stock
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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
Cummins (CMI - Free Report) is headquartered in Columbus, and is in the Auto-Tires-Trucks sector. The stock has seen a price change of 15.01% since the start of the year. The engine maker is paying out a dividend of $1.35 per share at the moment, with a dividend yield of 2.07% compared to the Automotive - Internal Combustion Engines industry's yield of 0.61% and the S&P 500's yield of 1.39%.
In terms of dividend growth, the company's current annualized dividend of $5.40 is up 2.2% from last year. Cummins has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.45%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Cummins's payout ratio is 45%, which means it paid out 45% 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 $13.97 per share, with earnings expected to increase 16.32% from the year ago period.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).