Reports of the Best Dividend Stocks

This category contains listings of the most recently published stock analysis reports.

For the full list, see the alphabetical listing of stock reports.

REITs on the radar: Realty Income Corp

What Makes Realty Income (O) a Good Business?

Realty Income is a Real Estate Income Trust (REIT) operating mainly in the retail business (79.5% of rental income) along with a small diversification in industrial and office businesses. The company focuses on acquiring freestanding, single-tenant properties under long-term, net lease agreements. It has built the bulk of their business through purchasing Real Estate from potential client to lease them back to them.

Realty Income owns over 4,900 properties with 47 different lines of businesses. Their three largest segments of business in term of rental income are Drug Stores (11.1%), Convenience Stores (9.9%) and Dollar Stores (8.0%). Their three most important states are Texas (9.7%), California (9.4%) and Florida (5.9%).

Revenue

Revenue Graph from Ycharts

As you can see, O is on a solid streak for growth since 2012. The company is using a growth by acquisition strategy and has been increasing its asset size by $9.3 billions since 2010 with $1.86 billions acquisition in 2016. Management still has access to a $2 billion acquisition credit facility for future purchases. While the 2013-2017 growth trend is unsustainable, you can expect O to continue showing stronger revenues in the upcoming years.

How O fares vs My 7 Principles of Investing

We all have our methods for analyzing a company. Over the years of trading, I’ve been through several stock research methodologies from various sources. This is how I came up with my 7 investing principles of dividend investing. Let’s take a closer look at them.

Source: Ycharts

Principle #1: High Dividend Yield Doesn’t Equal High Returns

My first investment principle goes against many income seeking investors’ rule: I try to avoid most companies with a dividend yield over 5%. Very few investments like this will be made in my case (you can read my case against high dividend yield here). The reason is simple; when a company pays a high dividend, it’s because the market thinks it’s a risky investment… or that the company has nothing else but a constant cash flow to offer its investors. However, high yield hardly come with dividend growth and this is what I am seeking most.

Source: Data from Ycharts.

Realty Income has maintained a relatively high yield since 2012, but nothing seems out of control. In fact, the recent stock price rise since 2014 brought the dividend yield below the 5% level while the dividend payment continued to raise.

O meets my 1st investing principles.

Principle #2: Focus on Dividend Growth

Speaking of which, my second investing principle relates to dividend growth as being the most important metric of all. It proves management’s trust in the company’s future and is also a good sign of a sound business model. Over time, a dividend payment cannot be increased if the company is unable to increase its earnings. Steady earnings can’t be derived from anything else but increasing revenue. Who doesn’t want to own a company that shows rising revenues and earnings?

Source: Ycharts

O shows an impressive track record of almost 47 years with dividend payments along with 21 consecutives years with a dividend increase. During this period, O is showing a compound average annual growth rate of 4.7%. This is more than enough to beat inflation. Another nice feature for income seeking investors is that O pays its dividend on a monthly basis making it easier to manage one’s budget.

O meets my 2nd investing principle.

Principle #3: Find Sustainable Dividend Growth Stocks

Past dividend growth history is always interesting and tells you a lot about what happened with a company. As investors, we are more concerned about the future than the past. this is why it is important to find companies that will be able to sustain their dividend growth.

Source: data from Ycharts.

It is a little bit more different to analyse REIT than other stocks. While I consider the payout and cash payout ratio for other companies, I must focus on FFO (funds from operations) and AFFO payout ratios. The first graph shows you that management makes a good job raising the dividend according to the FFO trend.

The following graph has been created from O 2016 financial statements. It shows that their payout ratios are not only under control, but they are both decreasing from 92% and 91% in 2009 to 83% for both ratios in 2016.

O meets my 3rd investing principle.

Principle #4: The Business Model Ensure Future Growth

I like Realty Income diversification model where management leaves very little room for uncertainty. Their top 20 tenants represent 53% of their rental income spread across 11 different industries. It also shows a steady occupancy rate in the 98’s with a 99% recapture of expiring rents rate since 1996.

Beyond the REIT diversification, I like its growth by acquisition strategy ensuring higher revenues and dividend payment over time even more. O has developed a strong expertise in growing their property portfolio on a steady and sustainable manner. Through this strategy, they roughly double the number of property owned every 10 years.

Finally, the big talk about the retail REIT industry right now is all about finding ecommerce resilient tenants. We are very aware of classic stores such as Walmart (WMT) and Target (TGT) growth challenges by Amazon (AMZN) of this world. In this category, O is making an effort and shows an interesting mix of tenants. This is not the most ecommerce proof REIT I’ve seen (NNN is definitely ahead in this category), but it still makes good figures.

O still shows a strong business model and meets my 4th investing principle.

Principle #5: Buy When You Have Money in Hand – At The Right Valuation

I think the perfect timing to buy stocks is when you have money. Sleeping money is always a bad investment. However, it doesn’t mean that you should buy everything you see because you have some savings aside. There is a valuation work to be done. In order to achieve this task, I will start by looking at how the stock market valued the stock over the past 10 years by looking at its PE ratio:

Source: data from Ycharts.

While the PE ratio is not exactly the best metrics to evaluate a REIT, you can see how it makes little sense to purchase a stock at a 50 multiplier. The stock price seems high considering its historical valuation.

Digging deeper into this stock valuation, I will use a double stage dividend discount model. As a dividend growth investor, I rather see companies like big money-making machine and assess their value as such. I used a 4.5% dividend growth rate for the first 10 years which is in line with the company history growth rate.  As the business will have a hard time continue growing at the past 4 years pace, I expect the terminal growth rate to reduce to 4%.

Here are the details of my calculations:

Source: Dividend Monk Toolkit Excel Calculation Spreadsheet

As we often see on the market, there is a price to pay for quality stocks. This seems to be the case for O as both valuation methods show it is currently overvalued.

O DOES NOT my 5th investing principle with a potential upside of 33%

Principle #6: The Rationale Used to Buy is Also Used to Sell

I’ve found that one of the biggest investor struggles is to know when to buy and sell his holdings. I use a very simple, but very effective rule to overcome my emotions when it is the time to pull the trigger. My investment decisions are motivated by the fact that the company confirms or not my investment thesis. Once the reasons (my investment thesis) why I purchase shares of a company  are not valid anymore, I sell and never look back.

Investment thesis

While O is currently overvalued according to our model, an investment in this company today still makes sense. If you are looking for a steady high yielder in your portfolio, an investment in O makes total sense. You will benefit from a company that is geographically diversified and that has focused on tenants with limited exposure to ecommerce threats.

Realty Income shows a stellar dividend growth history leading me to think the payout will continue to increase in the rage of 4% to 4.5% each year for several years to come. O seems a great fit for any income seeking investors.

O shows a solid investment thesis and meet my 6th investing principle.

Principle #7: Think Core, Think Growth

My investing strategy is divided into two segments: the core portfolio built with strong & stable stocks meeting all our requirements. The second part is called the “dividend growth stock addition” where I may ignore one of the metrics mentioned in principles #1 to #5 for a greater upside potential (e.g. riskier pick as well).

When you purchase a REIT, you don’t expect its stock price to compete against AAPL growth. Realty Income does use a growth by acquisition strategy to generate value for its shareholders but don’t expect the stock price to soar anytime soon, especially with the current valuation. However, you can expect O to pay a better yield than most bonds with a nice increase each year.

O is a core holding.

Final Thoughts on O – Buy, Hold or Sell?

In the light of my analysis, I conclude that O is a very interesting company but not at this valuation. I think that if you are in the search for additional income in your portfolio, it should be on your watch list, but you could certainly benefit from a better entry point in the future.

 

Disclaimer: I do not hold O in my DividendStocksRock portfolios but intend to purchase the stock.

The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.

General Electric is Dressed to Please but You have to Sell it Now

DSR Quick Stats

Sector: industrial

5 Year Revenue Growth: -4.73%

5 Year EPS Growth: -31.80%

5 Year Dividend Growth: 14.87%

Current Dividend Yield: 3.06%

What Makes General Electric (GE) a Good Business?

First, a company with an emblematic founder named Thomas Edison. Second, a company that has been around for over one hundred years and that has been paying dividend for a century to its shareholders. Third, a company with an enormous portfolio of products and services operating across the world. The company counts 8 division among their “GE Store”:

  • Power: combustion science and services, installed base.
  • Energy connections: electrification, controls and power conversion technology.
  • Renewable energy: sustainable power systems and storage.
  • Oil & Gas: services & technology.
  • Transportation: engine technology and localization in growth regions.
  • Lighting: LED bulbs.
  • Healthcare: diagnostics technology.
  • Aviation: advanced materials, manufacturing and engineering products.

Which such a resume, you would think that GE should be the perfect holding for any dividend growth investors, right? The company is certainly a big player in several markets, but the drop of 31% of its earnings over the past 5 years concern me. Let’s dig further.

Revenue

ge-revenue

Revenue Graph from Ycharts

Since its record year in 2009, the company has been suffering greatly. The problem is that GE has become definitely too big to being handled properly. Several segments underperformed and wasted cash and human resources. Management has finally woke up and put effective measure to reposition their massive brand portfolio and show interesting perspective in the past couple years.

How GE fares vs My 7 Principles of Investing

We all have our methods for analyzing a company. Over the years of trading, I’ve been through several stock research methodologies from various sources. This is how I came up with my 7 investing principles of dividend investing. Let’s take a closer look at them.

ge

Source: Ycharts

Principle #1: High Dividend Yield Doesn’t Equal High Returns

My first investment principle goes against many income seeking investors’ rule: I try to avoid most companies with a dividend yield over 5%. Very few investments like this will be made in my case (you can read my case against high dividend yield here). The reason is simple; when a company pays a high dividend, it’s because the market thinks it’s a risky investment… or that the company has nothing else but a constant cash flow to offer its investors. However, high yield hardly come with dividend growth and this is what I am seeking most.

ge-yield

Source: data from Ycharts.

General Electric has posted a steady dividend yield around 3% over the past decade (excluding the short peak in 2009 following the recession). It is important to point out the dividend cut in 2009 as GE Capital business went south due to the 2008-2009 credit crunch. After this dark year, the company has put everything in place to grow back its dividend to its previous level.

GE meets my 1st investing principle.

Principle#2: Focus on Dividend Growth

My second investing principle relates to dividend growth as being the most important metric of all. It proves management’s trust in the company’s future and is also a good sign of a sound business model. Over time, a dividend payment cannot be increased if the company is unable to increase its earnings. Steady earnings can’t be derived from anything else but increasing revenue. Who doesn’t want to own a company that shows rising revenues and earnings?

ge-dividend

Source: ycharts

As I mentioned in the previous chart, the dividend payment as greatly cut in 2009 bringing back the distribution past the 2000’s level. Since then, GE has made a honest effort to compensate their shareholders through 14 Billions in share repurchase and 4 Billions in dividend payment. Unfortunately, as the economy has slowed down in the past 18 months, GE is struggling again to post dividend growth.

GE does not meet my 2nd principle.

Principle #3: Find Sustainable Dividend Growth Stocks

Past dividend growth history is always interesting and tells you a lot about what happened with a company. As investors, we are more concerned about the future than the past. this is why it is important to find companies that will be able to sustain their dividend growth.

ge-sustainable

Source: data from Ycharts.

When you look at both payout and cash payout ratio, you understand why management has to remain cautious about their dividend increase. The payout ratio is steady high around 80% for year and the cash payout ratio is currently deep in the red. The company doesn’t show strong ability to sustain their payouts through the long haul.

GE doesn’t meet my 3rd investing principle.

Principle #4: The Business Model Ensure Future Growth

I think it’s unfair to judge General Electric solely on its metrics. The company still show several positive points throughout its business model. GE has made lots of effort to aligned its various segments in order to create additional synergy. GE is offering more services to its partners and customers in order to assist clients in buying and using GE products. There is definitely room for growth in this area.

The second growth vector GE presents is its strategy to develop the Chinese market. The country will continue seeking for renewable energy, more mass transportation and affordable healthcare due to the size of its population. Those are all areas GE can play a role. For this reason, the company is heavily implementing activities in this region and also works through partnerships with Chinese company.

What General Electric does with its cash?

GE management is well aware they must do something to keep their investor on board. This is not by fluke they have used 18 billions to repurchase shares and hike their dividend in the past few years. GE is also investing massively in their R&D departments in order to keep their edge against their competitor. Since they are active in various industries, it requires lots of cash flow to innovate everywhere.

GE is also using a part of its cash flow to make acquisitions. They have recently purchased Alstom to penetrate the European market as well as Arcam and SLM Solutions to use their technology and become a bigger player in Europe as well.

GE has a strong business model and therefore meet my 4th investing principle.

Principle #5: Buy When You Have Money in Hand – At The Right Valuation

I think the perfect time to buy stocks is when you have money. Sleeping money is always a bad investment. However, it doesn’t mean that you should buy everything you see because you have some savings aside. There is a valuation work to be done. In order to achieve this task, I will start by looking at how the stock market valued the stock over the past 10 years by looking at its PE ratio:

ge-pe-ratio

Source: data from Ycharts.

After declaring a loss in 2015, GE PE ratio has greatly jumped from its previous average. At this point, it seems to me that the market truly believe GE will be able to go against the current challenging environment and generate additional growth in the future. I’m not convinced enough to pay over 25 times its earnings…

By using the dividend discount model, I will have a better idea if GE, as a money distributor, worth my money. I think GE will struggle to increase its dividend over the inflation rate for the first 10 years. For this reason, I will use a 3% dividend growth rate. As a terminal rate, I will use 5% as I think the company has a strong plan and will eventually post revenue and earnings growth. The discount rate I use is 10% since GE raises various concerns at the moment.

ge-input

Here’s the detail of my calculations:

ge-value

Source: Dividend Monk Toolkit Excel Calculation Spreadsheet

As you can see, GE is definitely not valued as a dividend growth stock. The market truly believes in the company and thinks it will post solid growth in the future. However, there is nothing right now justifying its current value as a dividend growth investor perspective.

GE doesn’t meet my 5th investing principle.

Principle #6: The Rationale Used to Buy is Also Used to Sell

I’ve found that one of the biggest investor struggles is to know when to buy and sell his holdings. I use a very simple, but very effective rule to overcome my emotions when it is the time to pull the trigger. My investment decisions are motivated by the fact that the company confirms or not my investment thesis. Once the reasons (my investment thesis) why I purchase shares of a company  are not valid anymore, I sell and never look back.

Investment thesis

If GE is able to generate additional cross selling between its divisions and is able to benefit from future growth in China, this play will become a strong holding for many years to come. An investment in GE today is a vote of confidence in GE management team and its ability to realize its strategy. GE is big enough to reverse the current trends and post several years of growth ahead.

Risks

Unfortunately, there are a lots of “if” in my investment thesis. On the other side, the oil & gas industry is hurting GE revenue as well as the separation from GE Capital, a hectic, but highly profitable division. It will take years for others industrial segment to compensate GE Capital financial performance. Finally, GE is not generating the expected synergy with the acquisition of Alstom. It seems they have a more challenging time integrating this company to their current business model.

GE shows more risk than a strong investment thesis and doesn’t meet my 6th investing principle.

Principle #7: Think Core, Think Growth

My investing strategy is divided into two segment: the core portfolio built with strong & stable stocks meeting all our requirements. The second part is called the “dividend growth stock addition” where I may ignore one of the metrics mentioned in principles #1 to #5 for a greater upside potential (e.g. riskier pick as well).

Having both segment helps me to categorize my investments into a “conservative” or “core” section or into a “growth” section. I then know exactly what to expect from it; a steady dividend payment or higher fluctuation with a great growth potential.

At this time, I can see why there is an interest in GE shares. If all starts are aligned, GE could post solid financial results in a few years from now and reward their shareholders big time. However, it must be taken as a risky play, not a guarantee you will see your money grow.

GE is a growth holding.

Final Thoughts on GE – Buy, Hold or Sell?

In all honesty, GE is not worthy of my money. If I was holding this stock in my portfolio, I would sell it right now. In the industrial sector, I would rather purchase 3M Co (MMM) or Honeywell (HON) way before GE. There are too much uncertainties and too many “if’s” before getting my money back. GE plan to grow is seductive, but it’s just not enough. You can definitely find strong companies elsewhere.

Disclaimer: I do not hold GE in my DividendStocksRock portfolios.

Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.

Cummins

Summary

It’s key advantage is CMI’s expertise in the design of lower emission generating engines.
CMI is working with its clients to meet new regulation requirements from the Environmental Protection Agency.
CMI’s ability to protect its know-how in designing more eco-friendly engines will open doors to markets such as India and China.

DSR Quick Stats

Sector: industrials
5 Year Revenue Growth: 7.64%
5 Year EPS Growth: 18.13%
5 Year Dividend Growth: 32.03%
Current Dividend Yield: 3.43%

What Makes Cummins (CMI) a Good Business?

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems.

The company is divided into 4 business segments:
CMI business segmentsSource: author’s table, data from Cummins financial reports

Cummins’ business model is closely related to the transportation, mining and infrastructure industries as 42% of its sales come from its engine division. The demand for heavy-duty and medium-duty trucks/bus engines are the two biggest sectors of this division with $631M in sales (-17%) and $549M (-10%) respectively during their latest quarter.

The company has a long time expertise in building efficient engines with low emissions. As environmental regulations increase each year, we can see a strong economic moat for Cummings.

Ratios

Price to Earnings: 15.06
Price to Free Cash Flow: 14.09
Price to Book: 2.2798
Return on Equity: 17.71%

Revenue

CMI revenueRevenue Graph from Ycharts

The demand for engines in North America and Brazil has been lower than in previous years and this is mainly why Cummins shows a decrease in its revenue in 2016. Management expects revenue to drop by 5 to 9% yoy for 2016.

How CMI fares vs My 7 Principles of Investing

We all have our methods for analyzing a company. Over the years of trading, I’ve been through several stock research methodologies from various sources. This is how I came up with my 7 investing principles of dividend investing. Let’s take a closer look at them.
CMISource: Ycharts

Principle #1: High Dividend Yield Doesn’t Equal High Returns

My first investment principle goes against many income seeking investors’ rule: I try to avoid most companies with a dividend yield over 5%. Very few investments like this will be made in my case (you can read my case against high dividend yield here). The reason is simple; when a company pays a high dividend, it’s because the market thinks it’s a risky investment… or that the company has nothing else but a constant cash flow to offer its investors. However, high yield hardly come with dividend growth and this is what I am seeking most.
CMI div paid yieldSource: data from Ycharts.

As you can see, CMI dividend yield has been low historically. Besides the 2008 crisis, the company used to pay a yield between 1% and 2% for most of the decade. The stock yield has recently increased due to a very steep dividend growth increase rate and a recent drop in the stock price.

Most industrials have the bad habit of following cyclical trends. The good news is when you didn’t buy it yet, it opens great opportunities for new investors. Entering a position in CMI at 3.43% dividend yield seems like a good deal so far.
CMI meets my 1st investing principle.

Principle#2: Focus on Dividend Growth

My second investing principle relates to dividend growth as being the most important metric of all. It proves management’s trust in the company’s future and is also a good sign of a sound business model. Over time, a dividend payment cannot be increased if the company is unable to increase its earnings. Steady earnings can’t be derived from anything else but increasing revenue. Who doesn’t want to own a company that shows rising revenues and earnings?

CMI has been more than generous with its shareholders over the past 5 years. In fact, the company shows a dividend growth rate of 32.03% CAGR. It has successfully increased its dividend for the past 6 years in a row after taking a small pause of 1 year in 2009 following the latest recession. With their recent strong dividend increase, management has made a solid statement that dividend growth was a priority for them too. CMI meets my 2nd investing principle.

Principle #3: Find Sustainable Dividend Growth Stocks

Past dividend growth history is always interesting and tells you a lot about what happened with a company.As investors, we are more concerned about the future than the past. this is why it is important to find companies that will be able to sustain their dividend growth.
CMI payout ratioSource: data from Ycharts.

While the company has been increasing their dividend aggressively over the past 5 years, you can see that this wasn’t an operation to simply look good. Management was able to maintain both the payout ratio and cash payout ratio under 50% until recently. It would be unrealistic to expect a double digit dividend growth rate forever. The company has simply positioned itself in the dividend basket to attract more investors. Further on, we can expect a slower but solid dividend growth rate. CMI meets my 3rd investing principle.

Principle #4: The Business Model Ensure Future Growth

Cummins sells consumable products with a strong brand name. The best part is that there is an important evolution in most of its products. The company is the largest manufacturer of natural gas and hybrid bus engines in the USA. As environmental regulations move forward, we will see an increase in the demand for such products. Being a leader in a changing industry is a very good thing only if you can put the money in R&D to make sure you follow the trend.

What Cummins does with its cash?
The company increased its operating cash flow from $173M to $263M for their first quarter of the year. This improvement was due to lower working capital required. As previously mentioned, management has been quite generous with its shareholders and a good part of CMI cash flow went into dividend payments.

Besides paying back its shareholders, CMI has also used a lot of money to improve its products and remain the leader in low emission engines. This is how they will remain on the top of their game and gain additional market share in the future.
CMI has a strong business model and meets my 4th investment principle.

Principle #5: Buy When You Have Money in Hand – At The Right Valuation

I think the perfect time to buy stocks is when you have money. Sleeping money is always a bad investment. However, it doesn’t mean that you should buy everything you see because you have some savings aside. There is some evaluation work to be done. In order to achieve this task, I will start by looking at how the stock market valued the stock over the past 10 years by looking at its PE ratio:
CMI PE ratioSource: data from Ycharts.

As is the case with most industrials, CMI is demonstrates a cyclical PE ratio depending on which environment it evolves. The company recently saw its PE going up as earnings dropped faster than its price due to slower demand. Nonetheless, I don’t think that such a strong company is overvalued at a 15 PE ratio.

I’ve also used the dividend discount model to give a more precise value to CMI with a dividend growth investor perspective. As I’ve mentioned before, I don’t expect CMI to keep up its double digit dividend growth policy. This is why I’ve used an 8% growth rate for the first 10 years and dropped it to 6% for the years after. Since the company is evolving in a cyclical industry and is dependent on other cyclical industries such as mining, I’m using a 10% discount rate.

Input Descriptions for 15-Cell Matrix INPUTS
Enter Recent Annual Dividend Payment: $3.92
Enter Expected Dividend Growth Rate Years 1-10: 8.00%
Enter Expected Terminal Dividend Growth Rate: 6.00%
Enter Discount Rate: 10.00%

Here’s what the calculation give me:

CMI intrinsic value

Source: Dividend Monk Toolkit Excel Calculation Spreadsheet

As the stock is currently trading around $113, we have a small discount as its intrinsic value should be more around $121. Considering both analysis, CMI meets my 5th investing principle.

Principle #6: The Rationale Used to Buy is Also Used to Sell

I’ve found that one of the biggest investor struggles is to know when to buy and sell his holdings. I use a very simple, but very effective rule to overcome my emotions when it is the time to pull the trigger. My investment decisions are motivated by the fact that the company confirms or not my investment thesis. Once the reasons (my investment thesis) why I purchase shares of a company are no longer valid, I sell and never look back.

Investment thesis
An investment in CMI is based on its ability to protect its know-how in designing more eco-friendly engines. New markets are slowly but surely opening to Cummins due to this specific expertise. Europe in the upcoming years and later China & India will also improve their environmental rules with regards to emissions. They will then open the doors to companies such as Cummins to benefit from their expertise. CMI has already created partnerships with important clients such as TATA in India.

It is very difficult for its competitors to catch up on 10 years of massive R&D investments to develop such technology. This is how Cummins should keep its competitive advantage for a while. An investment in CMI right now, is also an investment in a lowered valued stock paying a healthy dividend around 3.50%.

Risks
Nothing is perfect for Cummins and it will face additional competition in the future. One of its largest clients, Paccar started to sell its own engine in North America. This has obviously slowed down CMI’s growth potential in the US while also hurting its margins.

The company also might have to make partnerships with Chinese companies to conquer this market. While this is very positive for the future growth of the company, CMI might also put at risk its best asset: intellectual property. They will have to remain very cautious about their offshore partnerships.

Overall, there is more goods than bad and CMI meets my 6th investing principle.

Principle #7: Think Core, Think Growth

My investing strategy is divided into two segments: the core portfolio built with strong & stable stocks meeting all our requirements. The second part is called the “dividend growth stock addition” where I may ignore one of the metrics mentioned in principles #1 to #5 for a greater upside potential (e.g. riskier pick as well).

Having both segments helps me to categorize my investments into a “conservative” or “core” section or into a “growth” section. I then know exactly what to expect from it; a steady dividend payment or higher fluctuations with a greater growth potential.

Cummins is clearly a good holding for a core portfolio. They will continue to pay a steady and increasing dividend but the stock growth is limited. While I would not buy CMI as my first stock for a portfolio, Cummins offer a great addition for a stable conservative portfolio. CMI is a core holding.

Final Thoughts on CMI– Buy, Hold or Sell?

Considering the very few opportunities in the current market, I think CMI could be a good addition for any dividend growth investors. Don’t expect to see the stock skyrocket in the upcoming year, but you can rest assured to receive an increasing dividend payment. I’m not overly confident in the company’s growth perspective, but I would gladly give them a moderate buy rating. What do you think?

Disclaimer: I do not hold CMI in my DividendStocksRock portfolios.

Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.