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Cummins (CMI) Hikes Dividend: Should You Invest in the Stock?
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Leading engine manufacturer and global power solutions provider Cummins (CMI - Free Report) has raised its quarterly dividend by 8.3% to $1.82/share. This marks the 15th consecutive year of payout hike. The dividend will be paid on Sep 5, 2024, to shareholders as of Aug 23, 2024.
Currently, the company's dividend yield stands at 2.5%. Over the past five years, CMI has raised its dividend six times, with a five-year annualized dividend growth rate of 6.53%. The payout ratio of 35% looks sustainable.
Reasonable debt levels and solid operational efficiency allow management to return value to shareholders. Cummins returned $921 million to shareholders via dividends last year.
The company boasts an ‘A’ credit rating from S&P Global Ratings. CMI’s return on equity of 25% compares favorably with the auto sector’s 11%, underscoring management's operational efficiency and ensuring continued payouts. As part of its commitment to increase shareholder value, Cummins sticks to its plan of returning nearly 50% of its operating cash flow to shareholders.
Cummins’ Prospects Bright
Cummins is strategically positioned for long-term growth through its impressive product portfolio, global distribution network and commitment to carbon neutrality. The 2022 acquisition of Meritor has strengthened its position as a leader in integrated powertrain solutions, spanning both internal combustion and electric applications. This acquisition enhanced Cummins’ components business and promises $130 million in annual pre-tax synergies by 2025.
Cummins is aggressively advancing in electrification, fuel cell and hydrogen production technologies, demonstrated by its HELM platform and next-gen diesel engines meeting 2027 regulations. With a $500 million electrolyzer backlog and facility expansions, the company is poised to capitalize on the rising clean energy demand.
The Power Systems segment is likely to be driven by growth in power generation volumes and enhanced operational efficiencies. Global market strength, particularly in China and India, further supports Cummins’ revenue growth expectations. This combination of innovation, strategic acquisitions and market expansion underscores its strengths.
Near-Term Challenges Remain
Lower truck production in North America is expected to reduce Cummins’ engine shipments by 5-10% in 2024, leading to flat or decreased revenue in the Engine unit and a decline in EBITDA margins from 14.1% to 12.7-13.7%. Additionally, heavy investment in the Accelera segment has resulted in increasing operating losses, expected to reach $400-$430 million this year. Rising R&D, SG&A costs and escalating capital expenditures, projected between $1.2 billion and $1.3 billion for 2024, are further straining near-term financials.
Price Performance and Valuation
Shares of Cummins have soared 14.4% year to date, outperforming the auto sector.
Image Source: Zacks Investment Research
From a valuation standpoint based on P/E ratio, CMI shares currently trade at 13.44 forward earnings, lower than the sector’s 17.13 but higher than its five-year median levels.
Image Source: Zacks Investment Research
Wait for a Better Entry Point
While the company holds long-term promise, this might not be the opportune time to invest in Cummins. The Zacks Consensus Estimate for 2024 revenues and earnings implies a year-over-year decline of 4% and 5%, respectively. The company is also witnessing downward estimate revisions. The consensus mark for 2024 and 2025 EPS has moved south by 8 cents and 10 cents, respectively, over the past seven days.
Those who already own CMI stock should stay invested, but potential investors should wait for dips before buying. Cummins currently carries a Zacks Rank #3 (Hold) and has a VGM Score of A.
The Zacks Consensus Estimate for Honda’s fiscal 2025 EPS has moved up by 9 cents in 60 days. The company beat earnings estimates in each of the trailing four quarters. Honda has a VGM Score of B.
The Zacks Consensus Estimate for AXL’s 2024 EPS has moved up by 2 cents in 60 days. The company beat earnings estimates in three of the trailing four quarters and missed in one. American Axle has a VGM Score of A.
The Zacks Consensus Estimate for F’s 2024 EPS has moved up by 3 cents in 30 days. The company beat earnings estimates in three of the trailing four quarters and missed in one. Ford has a VGM Score of A.
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Cummins (CMI) Hikes Dividend: Should You Invest in the Stock?
Leading engine manufacturer and global power solutions provider Cummins (CMI - Free Report) has raised its quarterly dividend by 8.3% to $1.82/share. This marks the 15th consecutive year of payout hike. The dividend will be paid on Sep 5, 2024, to shareholders as of Aug 23, 2024.
Currently, the company's dividend yield stands at 2.5%. Over the past five years, CMI has raised its dividend six times, with a five-year annualized dividend growth rate of 6.53%. The payout ratio of 35% looks sustainable.
Reasonable debt levels and solid operational efficiency allow management to return value to shareholders. Cummins returned $921 million to shareholders via dividends last year.
The company boasts an ‘A’ credit rating from S&P Global Ratings. CMI’s return on equity of 25% compares favorably with the auto sector’s 11%, underscoring management's operational efficiency and ensuring continued payouts. As part of its commitment to increase shareholder value, Cummins sticks to its plan of returning nearly 50% of its operating cash flow to shareholders.
Cummins’ Prospects Bright
Cummins is strategically positioned for long-term growth through its impressive product portfolio, global distribution network and commitment to carbon neutrality. The 2022 acquisition of Meritor has strengthened its position as a leader in integrated powertrain solutions, spanning both internal combustion and electric applications. This acquisition enhanced Cummins’ components business and promises $130 million in annual pre-tax synergies by 2025.
Cummins is aggressively advancing in electrification, fuel cell and hydrogen production technologies, demonstrated by its HELM platform and next-gen diesel engines meeting 2027 regulations. With a $500 million electrolyzer backlog and facility expansions, the company is poised to capitalize on the rising clean energy demand.
The Power Systems segment is likely to be driven by growth in power generation volumes and enhanced operational efficiencies. Global market strength, particularly in China and India, further supports Cummins’ revenue growth expectations. This combination of innovation, strategic acquisitions and market expansion underscores its strengths.
Near-Term Challenges Remain
Lower truck production in North America is expected to reduce Cummins’ engine shipments by 5-10% in 2024, leading to flat or decreased revenue in the Engine unit and a decline in EBITDA margins from 14.1% to 12.7-13.7%. Additionally, heavy investment in the Accelera segment has resulted in increasing operating losses, expected to reach $400-$430 million this year. Rising R&D, SG&A costs and escalating capital expenditures, projected between $1.2 billion and $1.3 billion for 2024, are further straining near-term financials.
Price Performance and Valuation
Shares of Cummins have soared 14.4% year to date, outperforming the auto sector.
From a valuation standpoint based on P/E ratio, CMI shares currently trade at 13.44 forward earnings, lower than the sector’s 17.13 but higher than its five-year median levels.
Wait for a Better Entry Point
While the company holds long-term promise, this might not be the opportune time to invest in Cummins. The Zacks Consensus Estimate for 2024 revenues and earnings implies a year-over-year decline of 4% and 5%, respectively. The company is also witnessing downward estimate revisions. The consensus mark for 2024 and 2025 EPS has moved south by 8 cents and 10 cents, respectively, over the past seven days.
Those who already own CMI stock should stay invested, but potential investors should wait for dips before buying. Cummins currently carries a Zacks Rank #3 (Hold) and has a VGM Score of A.
Auto Stocks Worth Betting on Now
If you wish to invest in the auto sector, companies like Honda (HMC - Free Report) , American Axle (AXL - Free Report) and Ford (F) could be smart picks. While HMC and AXL sport a Zacks Rank #1 (Strong Buy), Ford carries a Zacks Rank #2 (buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Honda’s fiscal 2025 EPS has moved up by 9 cents in 60 days. The company beat earnings estimates in each of the trailing four quarters. Honda has a VGM Score of B.
The Zacks Consensus Estimate for AXL’s 2024 EPS has moved up by 2 cents in 60 days. The company beat earnings estimates in three of the trailing four quarters and missed in one. American Axle has a VGM Score of A.
The Zacks Consensus Estimate for F’s 2024 EPS has moved up by 3 cents in 30 days. The company beat earnings estimates in three of the trailing four quarters and missed in one. Ford has a VGM Score of A.