Thursday, October 11, 2012

Recent Buy

I decided to go on a bit of a spending spree today and also purchased of 23 shares of Cummins (CMI) at $87.49 per share.  You can check out my other purchase today here.  It's hard for me to keep cash in my brokerage account because I want to get it working for me.  Based on the last quarterly payout of $0.50 per share my YOC for this position is 2.28%.  The CMI shares will provide an extra $46 in annual dividends before any further increases or reinvestment.  I'll also receive my first payout from Cummins later this year in December with a $11.50 payout.

My investment in CMI is along the basis that I believe their natural gas engines will start to take more and more market share as natural gas becomes a viable alternative to gasoline.  Cummins stands to profit from more adoption of their natural gas engines into heavy truck engines and could reap huge rewards if the switch is made for personal vehicles.  CMI is more of a great total return stock at this point in time.  It has struggled recently and it's stock price has shown it after lowered guidance from management as well as the industry's bellweather Caterpillar.

CMI is trading on the low end of it's historical P/E ratio and has a very low payout ratio of just 16% based on the last quarter's results.  With a solid balance sheet CMI should be able to weather any downturn and come out unscathed and even stronger on the backside.  Cummins has 7 years of dividend growth behind it with a 5 year growth rate of 32.10%.

If Cummins pulls back further when it announces it's 3rd quarter results on October 30th I will probably be adding more to the position because on a total return basis they are set up to reap huge rewards.

My two purchases today of CMI and CAT will provide a total of $93.84 per year in dividends before any future increases.  Unfortunately these purchases lowered my YOC for my FI portfolio down from 2.68% to 2.65% and my Non-ESPP share YOC down from 3.20% to 3.09%.  My forward 12-month dividends now sits at $1,108.04.  I also brought my cash available to trade down to $1,265 but it will be getting boosted back up once my paycheck on the 15th clears and another $1,600 should be added later this month assuming my 2 open BAC call options that I sold are executed.

6 comments:

  1. Nice purchases of CAT and CMI! Similar to you, if CMI pulls back further at the end of the month after earnings, or even just stays at the current level, then I will likely increase my position. I think it's a great total return opportunity for a dividend growth stock.

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    1. Thanks! I wanted to hitch my wagon to 2 different companies in the heavy equipment sector and I think both of these offer great total return opportunities at today's prices. If I'd have been a little more patient this morning I could have picked up both a little lower but my entry prices should do just fine in the long run.

      Thanks for stopping by!

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  2. PIP,

    Wow. The debt is paid off and now you're a heavy hitter! Nice going with your recent purchases. Both CMI and CAT are industrial bellwethers with solid products and a lot of clout. Great numbers, and the dividend growth is shockingly high with CMI.

    Your pursuit of passive income is now in full gear!

    Best wishes!

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    1. DM,

      I know. Its so exciting to be done with saving for my wedding and having the debt paid off. I should be getting another $5k+ to invest next month. I love having my expenses so low that I can invest as much as I do. I'm truly blessed to have a fairly low stress and well-paying job that is really helping me to get my passive income up. CAT and CMI should be great total return investments going forward. Its awesome to have my forward 12 month dividends over $1100 now. And its only going to build from here.

      Thanks for stopping by!

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  3. Great buy! Count me in for some CMI as well. Just like you, I loaded up on CMI and CAT. They are hard to resist at these levels. Both companies are industry leaders and offer a combination of price appreciation and dividend growth. Good stuff.

    Cheers!

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    1. Thanks! I just wish I had some more capital available to load up more. I don't think you can go wrong with CMI or CAT at current levels, if they're at the same levels or lower later this month when I have more capital then I'll be picking up some more shares.

      Thanks for stopping by!

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