Cummins Inc. (CMI) is increasing its capital deployment to enhance shareholders’ value. The company announced a 25% rise in its quarterly cash dividend to 75 cents per share from 62.5 cents. This implies an annual dividend yield of 1.92% based on the closing share price of $155.96 as of Jul 8, 2014. The new dividend will be paid on Sep 2, 2014 to shareholders of record as of Aug 22, 2014.
Concurrently, the board of Cummins approved a new $1 billion share repurchase program, which will begin following the closure of its current $1 billion repurchase program.
The enhanced capital deployment reflects Cummins’ strong balance sheet as well as its confidence in long-term business prospects. The company repurchased 3 million shares in the first quarter of 2014 and has committed to return 50% of its full-year operating cash flow to shareholders through dividends and share repurchases. In the first three months of 2014, Cummins generated $263 million in net operating cash flow.
Moreover, the company’s cash and cash equivalents increased to $2.2 billion as of Mar 31, 2014 from $2.7 billion at the end of 2013. The strong cash balance allows Cummins to increase its dividend payment and share buyback expenses without affecting daily business operations.
Cummins currently has a Zacks Rank #2 (Buy). Some other automobile stocks worth considering include Meritor, Inc. (MTOR), China Automotive Systems Inc. (CAAS) and Autoliv, Inc. (ALV). Meritor and China Automotive sport a Zacks Rank #1 (Strong Buy), while Autoliv carries a Zacks Rank #2.
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