The stock market has been tough on a lot of equipment manufacturers, but let’s see if we can rev our dividend engines with an engine producing company. Cummins (CMI) is an OEM (original equipment manufacturer) that sells engines that go into other company’s products. One of their biggest lines is diesel engines that go into semi-trucks. When shipping companies ship a lots of products and are making money, then they buy more semi-trucks, who then buy more engines. When times get tougher and ship less stuff, they buy fewer trucks, which means, as you guessed it, means less engines to sell.
Taking semi-trucks as an example, they do not last forever. Which means they need replaced, eventually. With technology always increasing, engines will become more fuel-efficient, more environmental, more powerful, and more reliable. So whether the need is more semi-truck, replacements, or to improve your operation, this will lead to more engine sales. So a slow down today will eventually mean more sales in the future.
Cummins (CMI) has also been using its extra cash to decrease share count. It went from about 200 to 183 million shares since 2006. With just this, your percent ownership in the company will have increased 8.5% without buying any more shares. Along with that, the dividend payment had gone from $.36 to $3.90 per share, which is a large increase. From there, the shares have also increased from $25 to $100 a share. This is a great track record to show why Cummins (CMI) is best of breed in engines.
While it would be great to have bought this stock 10 years ago, let’s worry about today. The stock is down 33% from its 52 week high. The company’s revenue is larger than its market cap, suggesting a cheap entry point. The PE ratio is 13, which is lower than the S&P average. The dividend is currently 50% of earnings while things are a little rough. This suggest the dividend is safe and has room to grow. Cummins (CMI) has been paying an increasing dividend for 10 years, making them a dividend contender, with a starting dividend of 4.1%. This show they have the discipline to keep paying a better and better dividend.
Looking at the rate of growth, let’s cut it in half and see what we get with some large assumptions. In 2026, the stock price will be around $250, the dividend will be $15 a share, our YOC (Yield on Cost) will be 15%. The share count will go down another 5%, increasing my ownership of the company by that much. While yes, there is a good chance the stock could still fall another 33%, in 10 years, this still makes a great entry point. And even if it does, assuming I still agree with the above, I can buy more shares at an even better price.
It is nice not being as worried about the next quarters sales. Instead, I like to think about how the company will be worth a lot in the future, paying me a lot of money. We bought 3 shares of Cummins (CMI) for $293.32 including our turbo charged commissions. We will get $11.70 to start. We expect this dividend engine to continue higher in the future.