Wednesday, November 11, 2015

Recent Purchase - CMI



For some strange reason, my sharebuilder order was not processed on Tuesday. I must have not saved my order. Anyway, I had to pay a little more on the transaction fee which is not too bad when I compare with the fees I pay for my mutual funds in my 401k.


Based on my November screen and watchlist, I have a few companies to invest.


Today, I bought 10 shares of CMI.


Action
Security
Price
Quantity
Amount
Buy
CMI
$101.00
10
1010 +fees


The yield is close to 3.81% which increases my forward yearly dividends by $39.00.




About Cummins (CMI)


You can read more about CMI here. http://www.wikinvest.com/stock/Cummins_(CMI)


Criteria Table


CMI 11/2015
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
10 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
No
M* Narrow
M* & S&P
Credit Rating
> BBB+
Yes
A
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
Yes
Cash to Debt 1.04
Interest Coverage 36.95
Debt to Equity
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 4 Stars
Payout Ratio
<60%
Yes
33%
Dividend Growth
& Yield
Dividend Yield
>3%
Yes
3.90%
Dividend Growth
>5%
Yes
33.40%
Chowder
>8%
Yes
37.30%
Valuation
Yield/Avg Yield
>1.1
Yes
1.72
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 162.5
Low Point 108
P/E
Below Mid Point
Yes
Median 78.84 Current 10.71
DRRM
~10%
No - but 5% growth conservative
Assuming 5% growth; projected return=8.55%
M* Estimate
<M* est
Yes
M* 120
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 150
* Data from Gurufocus, M*, Yahoo Finance, Google Finance
Per the current quarter results, CMI missed on the earnings. So, why am I buying?


From my perspective, Industrials have been hammered from the last few months. This is what happens when you have slow economies around the world, coupled with a relatively strong dollar. Moreover, we are dealing with a very cyclical business.


My portfolio is also quite full with industrials so I need to be mindful of over investing.


Based on the fundamentals and criteria list, I think it is okay to slowly build up my CMI position. The cash is very strong which means short term dividends should be okay. I think CMI will be there for the long haul especially when the sector cycles around.


I will add more CMI if we dip into the 90s.


Fair Price Calculation


I use the dividend yield theory, PE analysis and DDRM for fair price calculation. Based on these methods, I estimate the fair price to be in the 110s. Therefore, I believe CMI is trading close to or just below fair value.


That's it for now! What do you think of CMI?
D4s

2 comments:

  1. Congrats on the purchase D4s! I like CMI here as well. The growth of the dividend the past few years has been awesome! >25% over the past 5 years! Great find and buy!

    -Adam

    ReplyDelete
    Replies
    1. Thanks Adam. The price dropped further, and I look forward to add more if it dips into the low-mid 90s. It's definitely a strong contender for div growth.
      D4s

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