Cummins announces 15 percent increase to dividend

Cummins Inc. (NYSE: CMI) announced that its board of directors has approved a 15 percent increase to its normal quarterly cash dividend. The new dividend, payable to shareholders on September 3, 2019, will be $1.311 per share versus the prior dividend of $1.14 per share.

“We have raised our quarterly dividend in each of the last 10 years, resulting in a 649 percent increase since 2009. The consistent increase in our dividend, through economic cycles, reflects confidence in our long-term performance and reinforces our commitment to delivering strong returns to shareholders,” said Tom Linebarger, Chairman and Chief Executive Officer.

The dividend increase is the largest for the company since the 25 percent increase announced in 2015.

Cummins ended the first quarter of 2019 with $1.574 billion in cash, cash equivalents and marketable securities on hand and its total debt-to-capital ratio stood at 21.7 percent (sub-40 percent is typically viewed as healthy for mature publicly traded companies). Debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA), the most viewed measure of a company’s ability to repay its debts by cash flow from its operations, stood at a healthy .83 times at the close of the March 2019 quarter according to the Wall Street Journal. Cummins reported $2.141 billion in net income in 2018.

Cummins other uses of cash

Companies typically deploy cash flow generated from operations in a couple of ways with capital expenditures, acquisitions, dividends and share repurchases being the most common uses of cash. Cummins uses its cash from operations in all of these methods.

Cummins plans to spend between $650 to $700 million in capital expenditures in 2019 on new product launches and facility improvements. This is down from the $784 spent in 2018, but higher than the near-$600 million levels seen in 2017 and 2016 as the company has an ongoing internal use software initiative in place which will cost it between $65 and $75 million in 2019.

Additionally, the company uses cash when investing in partial equity partnerships or outright acquisitions like fuel cell systems provider Hydrogenics Corporation (NASDAQ: HYGS), which it announced it was acquiring in June 2019.  

Cummins has a $2 billion share repurchase program in place which began in October 2018. At the close of the first quarter of 2019, only $194 million in stock had been repurchased.

The stock rallied on the news to close down a little more than 1 percent on the day at $167.29.

Cummins will announce its second quarter 2019 earnings on July 30.