Updated 3/7/25
Cummins Inc. is a well-established name in the industrial sector, known for producing engines, power systems, and alternative energy solutions. With a history dating back over a century, this Indiana-based company has built a reputation for durability and innovation. Whether it’s diesel engines, electrification, or hydrogen fuel technology, Cummins continues to adapt to changing market trends.
For dividend investors, Cummins is an interesting stock to analyze. It has a track record of consistent payouts, solid financial performance, and long-term growth potential. But is it still a good income investment at its current price? Let’s dive in.
Key Dividend Metrics
📈 Dividend Yield: 2.11%
💰 Annual Dividend: $7.28 per share
🔄 5-Year Dividend Growth: Positive, with steady increases
🛡 Payout Ratio: 24.67%, signaling strong coverage
📆 Ex-Dividend Date: February 21, 2025
📊 Dividend Safety: Well-supported by earnings
Dividend Overview
Cummins has built a reputation as a reliable dividend payer. The company’s current yield of 2.11% isn’t the highest in the industrial space, but it’s backed by a business with strong profitability. More importantly, the payout ratio sits comfortably at 24.67%, which means there’s plenty of room for future increases without putting strain on the company’s financials.
A key factor for income investors is stability, and Cummins has consistently delivered. It has raised its dividend year after year for over a decade, demonstrating a clear commitment to rewarding shareholders. The company’s cash-generating ability and disciplined capital allocation have played a big role in maintaining this consistency.
Dividend Growth and Safety
Dividend growth is one of the biggest selling points for Cummins. Over the past five years, the company has steadily increased payouts, often outpacing inflation. That’s a crucial factor for income-focused investors who want their dividend income to retain purchasing power over time.
One thing to keep an eye on is free cash flow. While Cummins generates strong operating cash flow at $1.49 billion, its levered free cash flow is currently negative at -$79.12 million. That’s something to monitor because long-term negative free cash flow could limit future dividend hikes.
The company’s debt levels are another factor worth noting. With total debt of $7.69 billion and a debt-to-equity ratio of 67.98%, Cummins isn’t overly leveraged, but it’s carrying a fair amount of debt. The current ratio of 1.31 indicates it has enough liquidity to cover short-term obligations, which adds to the overall dividend stability.
Chart Analysis
Price Movement and Trend
The stock has been in a steady uptrend for the past year, with a significant breakout around late October or early November that pushed prices to new highs. However, after reaching a peak, the stock has been consolidating, with some signs of weakness emerging. The recent price action suggests that momentum is slowing, and the stock is now testing key support levels.
The 50-day moving average (orange line) had been providing support for much of the rally, but the stock has recently dipped below it. This is often an early warning sign that the trend may be shifting. Meanwhile, the 200-day moving average (blue line) remains in an upward trajectory, reinforcing the longer-term bullish trend.
Volume Analysis
Volume has been relatively low in recent trading sessions, suggesting that there hasn’t been strong conviction behind the recent price movement. The previous rally was supported by increasing volume, but as the stock has pulled back, volume has not spiked significantly. This indicates that selling pressure isn’t overwhelming, but at the same time, buyers aren’t stepping in aggressively either.
If volume picks up on a down move, it could indicate that investors are taking profits or reducing exposure. Conversely, a surge in volume on an upward move would suggest renewed buying interest.
Relative Strength Index (RSI)
The RSI is hovering around 51, which is a neutral reading. This means the stock is neither overbought nor oversold. The RSI had been in overbought territory during the strong rally but has since cooled off. If the RSI dips below 40, it could indicate that the stock is approaching an oversold condition, which sometimes precedes a bounce.
Key Support and Resistance Levels
Right now, the most immediate level to watch is the 344-345 range, where the stock has been hovering. This area previously acted as support, and if it holds, the stock may attempt to stabilize. However, if the stock breaks below this level convincingly, the next significant support could be around 325, where the 200-day moving average currently sits.
On the upside, resistance is likely in the 360-375 range, where the stock previously encountered selling pressure. A strong move above this area could signal a renewed uptrend.
Recent Candlestick Behavior
The last five candles show mixed sentiment. There are a few long upper wicks, which indicate that sellers stepped in at higher prices, preventing further gains. At the same time, there are no dramatic downward moves, which suggests that buyers are still somewhat present. A decisive candle—either a strong green close or a sharp red breakdown—will likely determine the next short-term direction.
Analyst Ratings
📊 Recent analyst sentiment on Cummins Inc. has been a mixed bag, with some firms raising their targets while others remain cautious. The consensus rating sits at Hold, with an average price target around $386.67, indicating some potential upside from current levels.
🔼 Upgrades
Several analysts have taken a more optimistic stance on Cummins. One firm recently increased its price target from $408 to $451, maintaining an Outperform rating. The reasoning behind this positive shift stems from strong financial results and strategic moves into zero-emission technology, particularly through its Accelera division, which focuses on battery and fuel cell solutions.
Another investment firm also boosted its price target, moving it from $390 to $405. Analysts at this firm cited Cummins’ ability to adapt to changing market conditions, expand beyond its traditional truck engine business, and capitalize on growth in alternative power solutions as key drivers of their decision.
🔽 Downgrades
On the flip side, some analysts have taken a more measured approach. A major investment bank recently upgraded Cummins from Underperform to Neutral but kept its price target at $358. While acknowledging improvements, analysts pointed out uncertainties in the heavy-duty truck market that could slow revenue growth in the near term.
Another firm downgraded the stock from Buy to Hold and set a target of $350, citing concerns over the cyclical nature of the commercial vehicle industry. With economic conditions fluctuating, there’s a risk that demand for engines and power systems may soften, which could put pressure on earnings.
⚖️ Final Take
With a mix of upgrades and downgrades, Wall Street remains divided on Cummins’ short-term outlook. The company’s push into clean energy solutions is earning praise, but analysts are keeping an eye on potential slowdowns in its core markets. Investors will need to weigh these factors carefully when considering their next move.
Earnings Report Summary
Cummins Inc. wrapped up the fourth quarter of 2024 with revenues of $8.4 billion, showing a slight 1% decline compared to the same time last year. While domestic sales held steady, international revenues slipped by 3%, reflecting some softness in global demand.
On the earnings front, net income came in at $418 million, or $3.02 per diluted share. That’s a major improvement from the previous year’s fourth quarter when the company reported a $1.4 billion net loss due to large one-time charges related to legal settlements. With those costs in the rearview mirror, Cummins is back on track with stronger profitability.
The company’s EBITDA, which measures earnings before interest, taxes, depreciation, and amortization, landed at $1.0 billion, making up 12.1% of total sales. This marks a significant turnaround from the negative EBITDA of $878 million in the same quarter last year, when those legal charges weighed heavily on the balance sheet.
For the full year, Cummins reported $34.1 billion in total revenue, which is right in line with 2023’s numbers. North American sales were up 1%, but international sales dipped slightly by the same percentage. One thing to note is that last year’s numbers included a full 12 months of revenue from Atmus Filtration Technologies, but in 2024, Atmus was only part of the books until its separation in March.
On an annual basis, net income jumped to $3.9 billion, or $28.37 per diluted share, a huge leap from $735 million, or $5.15 per share, the year before. A big part of this improvement comes from the fact that 2023’s earnings were weighed down by those large legal expenses.
Overall, Cummins delivered solid earnings and improved profitability, even with slightly lower revenue. With legal setbacks behind it and steady demand for its products, the company appears to be in a much stronger financial position than it was a year ago.
Financial Health and Stability
Cummins has a strong financial foundation, which is essential for a reliable dividend payer. Looking at profitability, the company has a profit margin of 11.57% and an operating margin of 11.71%, both solid numbers for an industrial firm.
Return on equity stands out at 38.36%, showing that the company is highly efficient in using its capital. Return on assets is lower at 7.45%, which is expected for an asset-heavy business like Cummins.
Revenue over the last twelve months was $34.1 billion, but the most recent quarter showed a slight decline of 1.1% year-over-year. While not a major concern, it’s something to watch, as prolonged revenue softness could eventually impact earnings and dividend growth.
Another measure to consider is enterprise value to EBITDA, which sits at 8.32. That suggests Cummins isn’t overvalued, but it’s also not trading at a deep discount. The company remains a solid performer, but investors should keep an eye on its earnings trajectory.
Valuation and Stock Performance
At its current price of $341.15 per share, Cummins is trading at a trailing P/E ratio of 12.16 and a forward P/E of 15.43. That valuation suggests the stock is reasonably priced, but not necessarily cheap.
The PEG ratio, at 0.67, indicates that Cummins is growing earnings at a rate that justifies its current price, which is a good sign for long-term investors. However, after a 28.39% rise in the past year, the stock is near its 52-week high of $387.90. That means some of the recent gains may already be priced in.
For those looking for an attractive entry point, waiting for a slight pullback could offer a better buying opportunity. The stock’s 52-week low of $260.88 suggests there has been some volatility, which could create buying chances down the line.
Risks and Considerations
Even strong dividend payers come with risks, and Cummins is no exception. Here are some key points to consider before investing.
1️⃣ The company operates in a cyclical industry, meaning demand for its products can fluctuate based on economic conditions. During downturns, earnings can take a hit.
2️⃣ The shift toward alternative energy is both an opportunity and a challenge. While Cummins is investing in hydrogen and electrification, it faces competition from newer players in the space.
3️⃣ The company carries a reasonable amount of debt. With interest rates still elevated, borrowing costs could increase, which might put pressure on free cash flow.
4️⃣ Recent revenue softness is worth monitoring. If the trend continues, it could impact future earnings growth and limit the company’s ability to raise dividends at the same pace.
5️⃣ The stock price has climbed significantly over the past year, which means it may not be the best time to buy for those looking to maximize yield. A market correction could present a better opportunity.
Final Thoughts
Cummins is a solid dividend stock with a well-established history of paying and growing its dividends. Its 2.11% yield, low payout ratio, and strong financials make it an attractive option for long-term income investors. The company’s high return on equity and steady profitability further reinforce its reliability.
That said, the stock is not trading at a deep discount right now, and recent revenue trends suggest some near-term headwinds. Investors who prioritize dividend stability may still find Cummins appealing, but those looking for an undervalued opportunity might consider waiting for a better price.
Overall, Cummins remains a well-run company with a strong dividend profile, but as always, keeping an eye on cash flow and earnings growth will be key to assessing its long-term potential.
Recent Comments