Dividend Increase | Cummins $CMI #Dividend

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Cummins for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  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.  

On July 12th the Board of Directors at Cummins (CMI) approved an increase in the quarterly dividend payment.  The dividend was increased from $1.45 to $1.57 which is a solid 8.3% increase.  Cummins is a Dividend Contender with 17 consecutive years of dividend growth.  Shares currently yield 2.80% based on the new annualized payout.

The new dividend will be payable September 1st to shareholders of record as of August 9th.

You can check out my latest analysis on Cummins here.

Since I own 15 shares of Cummins in my FI Portfolio, this raise increased my forward 12-month dividends by $7.20.  This is the 1st raise I've received from Cummins since initiating a position in earlier this year with total organic dividend growth over that time coming in at 8.3%

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

Dating back to 2000 Cummins' year over year dividend growth has ranged from 0.0% to 50.0% with an average of 16.6% and a median of 12.3%.  Not bad considering dividend growth stumbled after 2001 with raises not resuming until 2006.

There's been 18 rolling 5-year periods over that time with annualized dividend growth ranging from 1.2% to 32.5% with an average of 17.6% and a median of 16.0%.

Over the same period there's been 13 rolling 10-year periods with Cummins' annualized dividend growth ranging from 12.9% to 28.0% with an average of 20.4% and a median of 21.1%.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates for Cummins since 2000 can be found in the following chart.  

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

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5-year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

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

Cummins' 5-year average forward dividend yield is 2.79% which corresponds to a share price of $225 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $204 - $250 and suggests that shares are trading below the fair value range and a candidate for further research.

Wrap Up

This raise increased my forward dividends by $7.20 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.78% this raise is like I invested an extra $259 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.

This is the 33rd dividend increase I've received from the companies in my FI Portfolio increasing my forward 12-month dividends by $373.90 combined.

My FI Portfolio's forward-12 month dividends are $10,465.25  Including my FolioFirst portfolio's forward dividends of $184.53 brings my total taxable accounts dividends to $10,649.78.  My Roth IRA's forward 12-month dividends are $1,039.98.  My Rollover IRA's forward dividends are $4,513.62.  Across all accounts I can expect to receive $16,203.38 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Cummins' can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Cummins?  Do you think this power generation company can continue with excellent dividend growth over the long-term?

Please share your thoughts below.