For investors looking for steady income, a systematic way to choose dividend stocks is important. Instead of targeting the highest yields, which can sometimes point to hidden problems, a wiser plan involves searching for companies that pair a good dividend profile with sound core business basics. This involves finding stocks with a high dividend rating, which assesses yield, growth, history, and sustainability, while also checking the company is earning money and is financially sound enough to keep up those payments during different economic periods. This balanced check helps find companies where the dividend is not simply an attribute, but a sign of a lasting and soundly run business.
Cummins Inc. (NYSE:CMI), a worldwide head in designing and making diesel, natural gas, and electric powertrains, recently appeared using this kind of careful search method. The company's basic profile indicates it deserves more examination by dividend-oriented investors.
Examining the Dividend Profile
The center of the search method emphasizes a high ChartMill Dividend Rating, and Cummins receives a good 7 out of 10 in this group. This rating brings together a few main dividend condition measures:
- Dependable History: Cummins has a dividend history covering at least ten years without a cut, creating a history of dedication to shareholders. The dividend has increased at a good yearly rate of about 7% over the last five years.
- Maintainable Payout: A key measure for income investors is the payout ratio. Cummins distributes roughly 38.5% of its earnings as dividends. This is seen as a maintainable level, keeping plenty of room to put money back into the business, handle slow periods, and keep increasing the payout.
- Yield with Perspective: With a present yield near 1.55%, Cummins might not attract those looking for the absolute highest yield. Still, this yield is higher than the average for its industrial machinery group and is backed by the company's growth and sustainability numbers, not a low stock price.
This mix, a rising dividend from a company with a long record of payments and a careful payout ratio, matches well with a plan looking for steady and increasing income over the long term, instead of a risky high yield.
Supporting Basics: Earnings and Financial Condition
A good dividend is only as reliable as the company behind it. The search rules needed acceptable scores in earnings and financial condition to make sure the dividend is not in danger. Cummins' results here give supporting proof.
Earnings Power: The company gets a ChartMill Profitability Rating of 7. Main strong points involve:
- Steadily positive earnings and operating cash flow over the past five years.
- Return on Equity (ROE) of 22.1%, which does better than almost 90% of its industry competitors, showing efficient use of shareholder money.
- A good Return on Invested Capital (ROIC) of 10.9%, also placed in the top group of its industry.
These numbers show that Cummins is not only paying a dividend; it is producing more than enough profit to do so without strain, which is the base of any lasting dividend plan.
Satisfactory Financial Condition: With a ChartMill Health Rating of 5, Cummins displays a varied but generally okay financial state. Good points involve a safe Altman-Z score not near trouble levels and a workable Debt-to-Free-Cash-Flow ratio. Some liquidity measures, like the Current Ratio, are lower than many competitors, hinting it is not in the highest group of balance sheet power. However, the total evaluation shows the company is not carrying too much debt and has the financial steadiness looked for in a dependable dividend payer, meeting the "acceptable condition" limit of the search.
Price and Growth Points
While the search centered on dividend, earnings, and condition, a complete view needs mentioning other elements. The price rating for Cummins is a 3, hinting the stock is not low-priced. Its P/E ratio is higher than the industry average, though similar to the wider S&P 500. This higher price might be partly reasonable because of its better earnings and predicted earnings increase of over 13% per year. Growth numbers show a company changing, with past revenue increase slowing but a notable speed-up in EPS increase expected, pushed by its strategic moves in new power technologies like electrification and hydrogen.
Is Cummins Suitable for a Dividend Portfolio?
For an investor using a search that prizes dividend quality backed by basic strength, Cummins Inc. offers a strong argument. It provides a dividend with a confirmed history of growth, supported by a very profitable global business and a satisfactory financial base. The yield is modest, but the focus here is on the quality and maintainability of the income, not only its amount. As with all investments, the present price and the company's effective management of its growth plan in shifting markets are main items for more individual research.
Want to see other stocks that meet this careful dividend search? You can look at the complete list of passing companies by going to the pre-set "Best Dividend Stocks" screener.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The study is based on given data and basic ratings, which can change. Investors should do their own research and think about their personal money situation before making any investment choices.
