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.