One Raise At A Time | Cummins Revs Its Engine

Concept of how dividend growth investing works, health care, real estate
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Cummins for another dividend increase!
Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends.  Just for owning a small portion of said companies.  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  That's dividend growth investing at work!  I mean who doesn't like getting a raise for doing nothing?  Dividend growth investing is far from a get rich quick investment strategy, rather you need to remain focused on the long term goal to be successful.

On Tuesday the Board of Directors at Cummins Inc. (CMI) raised up their dividend payment to shareholders.  The dividend was increased from $1.08 up to $1.14 per share per quarter.  That's a solid 5.6% increase.  Cummins has grown their dividend payment for 12 consecutive years giving them the title of Dividend Contender.  Shares currently yield 3.32% based on the new annualized payout.

The new dividend will be paid out on September 4, 2018 to shareholders of record as of August 22nd.  

Since I own 23.318 shares of Cummins in my FI Portfolio this raise increased my forward 12-month dividends by $5.60.  This is the 6th dividend increase I've received from Cummins since initiating a position in late 2012.  Over that time the dividend has grown a total of 128%.  According to US Inflation Calculatorthe total inflation over that same period has come in at just 9.6%

A full screen version of this chart can be found here.

Cummins' dividend growth was a bit shaky in the early 2000's primarily due to an inconsistent payment schedule followed by a 24 quarter stretch that saw no dividend growth.  However, since 2006 the story has changed with raises coming like clockwork.  The last 2 raises have come in at just over 5% each so that's something to keep an eye on going forward.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1997 can be found in the following chart.  



A full screen version of this chart can be found here.

*2018's dividend assumes the new quarterly payout of $1.14 per share is maintained for the rest of the year.

Wrap Up

This raise increased my forward dividends by $5.60 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.95% this raise is like I invested an extra $190 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2018 I've received 34 dividend increases from 32 of the companies in my FI Portfolio combining to increase my forward 12-month dividends by $309.64.  

My FI Portfolio's forward-12 month dividends increased to $6,335.77.  Including my FolioFirst portfolio's forward dividends of $87.05 brings my total taxable accounts dividends to $6,422.83.  My Roth IRA's forward 12-month dividends are at $343.51.

Do you own Cummins in your own portfolio?  How do you deal with companies that show a marked slowdown in their dividend growth?

Please share your thoughts below.

Comments

  1. Hi JC. I used to own CMI, but sold after the quick run up 1-2 years ago. I believe the price has dropped a good $10 below where I got in, so CMI has hit my radar once again. The 5% raises are certainly something to watch, but they still nicely beat inflation. It's hard not to like CMI's dividend growth over the past decade. Hopefully, there's more of that to come over the next decade as well.
    Unless there's a dividend cut, I usually hold to see if the reduction in dividend growth is a short-term issue. One of my holdings that's seen a fairly steep dividend growth reduction is Target (TGT). It's been on the decline the past 3 years and is heading towards 3-4%.

    ReplyDelete
    Replies
    1. ED,

      I was very tempted to sell during that run up that CMI had, but decided to just hold. In retrospect that would have been the better play, but it's in the past now.

      When dividend growth slows rather dramatically such as with CMI's I typically take a wait and see approach unless I see something coming up ahead. As long as the dividend growth stays in the 5% area I'll still be a happy owner.

      All the best.

      Delete
  2. Great Share! :-)
    watch this amazing video CapitalStars

    ReplyDelete

Post a Comment