Cummins Inc. (CMI) is a multinational company that designs, manufactures, and distributes engines, filtration, and power generation products. Founded in 1919, Cummins is now a $33 billion (by market cap) manufacturing giant that employs nearly 58,000 people. The company reports results across five business segments: Engine, 32% of FY 2020 sales; Distribution, 29%; Components, 24%; Power, 15%; New Power, less than 1%.

Cummins makes most of its money by manufacturing, distributing, and supplying components for a range of diesel and natural gas engines. A variety of vehicles use these engines. This includes heavy-duty trucks, medium-duty trucks, buses, recreational vehicles, construction machinery, agricultural machinery, and watercraft. In addition, Cummins is preparing for the future of mobility by investing in fully electric and hybrid powertrain systems, as well as hydrogen fuel cell technology. This company, in a roundabout way, forms part of the backbone of our industrialized economy. Goods are often produced and moved around using the power generation products that Cummins manufactures. That’s why it’s been around for more than 100 years, and it’s highly likely it’ll be around for another 100 years (and beyond). This should translate to continued growth in their profit and dividend. Already, Cummins has increased its dividend for 16 consecutive years.

Neither the Great Recession nor the pandemic stopped them. The five-year dividend growth rate is 8.5%. The stock offers a current yield of 2.5%. I see that combination of yield and growth – which is in the low double digits – as quite compelling. This yield is within 20 basis points of its five-year average. And the payout ratio is a low 39.0%. These dividend metrics are very, very solid. CFRA rates CMI as a 4-star “BUY”, with a 12-month target price of $270.00. I came out almost exactly in the middle. Averaging the three numbers out gives us a final valuation of $249.80, which would indicate the stock is possibly 8% undervalued.

Bottom line: Cummins Inc. (CMI) is a high-quality company with great fundamentals that’s smartly positioning itself for the future of its industry. With a market-beating yield, inflation-beating dividend growth, a low payout ratio, 16 consecutive years of dividend increases, and the potential that shares are 8% undervalued, dividend growth investors ought to take a good look at this stock right now.

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