Cummins (CMI) is in the Old Folk Portfolio and one of the companies I added to at the open.
Cummins is a multinational engine and power generation manufacturer with a market cap of $31 billion.
Cummins is in a sweet spot in a lot of ways. On one hand, they’ve got a great legacy engine and power generation business that has excellent fundamentals, brand power, and customer loyalty. On the other hand, they’re positioning themselves for the future of mobility by investing in fully electric and hybrid powertrain systems, as well as hydrogen fuel cell technology. Taking a strong foundation and making it even stronger? That should pay dividends – literally and figuratively. Indeed, Cummins isn’t just an engine powerhouse; it’s also a dividend growth powerhouse.
Cummins has increased its dividend for 16 consecutive years.
 The five-year dividend growth rate of 8.5% easily beats inflation, even in this inflationary environment. And you get to pair that high-single-digit growth with a yield of 2.7%. That’s a very nice combination of yield and growth. And with a low payout ratio of 39.0%, this dividend is easily covered and highly likely to continue growing for years to come.
This is a great business, but the stock has been anything but great lately. It’s down 22% from its 52-week high.
The 52-week high is $277.09. Shares are currently trading hands for a bit over $216/each, so we’re a long way from those highs. I don’t know if/when it’ll just zoom right back up to the $280 area. And in all honesty, that kind of pricing looked a bit expensive to me. That said, I recently highlighted Cummins as a high-quality dividend growth stock that looked undervalued. In that full analysis and valuation video, I estimated intrinsic value for Cummins to be right about $250/share. So there’s a lot of potential upside here. And in the meantime, you’re collecting a market-beating yield growing at a high-single-digit rate. There’s really not much to complain about.
dividendsandincome.com |
