Cummins Good News/Bad News
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“I made a killing on Wall Street a few years ago…I shot my broker.” – Groucho Marx
An artist at her gallery opening asked the gallery owner if anyone had inquired about purchasing her artwork. The gallery owner said that someone had, but he had good news and bad news for the artist. “Well what’s the good news?” the artist asked. The gallery owner said a man interested in her work asked if there was any chance that the paintings would increase in value after her death. He told the man it was possible her art may fetch as much as 25% more than the asking price should the artist meet an untimely fate. “So the good news is, the man purchased all eleven of your pieces.” the gallery owner gushed. “So what’s the bad news?” the artist posed. The gallery owner sighed, “that man is your doctor.”
Cummins Inc. (NYSE: CMI) issued a press release along the lines of a stale good news/bad news joke Tuesday, July 10th. On the bright side of things, the company announced a 25% increase in its dividend payout to loyal shareholders, effective September 1st for shareholders of record August 22nd. This increases the annual dividend from $1.60 per share to $2.00 per share annually, bumping the yield from 1.7% to 2.3%, respectable for these trying economic times.
On the dark side of that release, the company lowered revenue guidance, initially estimating 10% growth from 2011, expecting them to be in line with the prior year’s revenues, in other words, flat. No growth. In the immortal words of Dean Wormer, “Zero…point…zero.”
Now there have been several folks beating the growth slowing drum for quite some time. It has been a popular mantra, and I’m sure it has been great for ratings, reads, hits, and subscriptions to services, whatever. But much like the joke, it’s tired, run its course, we get it, let’s move on. I have always been a student in the school of thought where it is all-too-easy to point out a problem, yet it’s much more difficult to take steps to put into motion a solution to said problem (Congress is forming a committee to discuss possible funding for this school). And when the screaming heads on TV discuss the Cummins press release, they seemingly enjoy arguing the level of liquid in the glass.
Being an eternal optimist (not really), those that follow the half-full sentiment can digest the 25% dividend increase and take into account the words from CEO Tom Linebarger that the “…announcement of a dividend increase reinforces our confidence in the long-term prospects for the Company.” That’s the good news. Everyone with a microphone and an agenda can take it however they want; I happen to like confidence from company executives. I am an investor, not a trader. I scoop up the “long-term prospects” words with a rather large spoon (and sprinkles).
The “bleeds-it-reads” bunch will be chest-beating, bemoaning the fact that the BRIC nations (Brazil, Russia, India, China), are slowing the assembly line to a snail’s pace; run for cover, the Earth will soon stop rotating on its axis. Growth slowing, we get it, that’s the bad news. But we should take into account that Cummins confronted this prior to their earnings call, July 31st (10:00am EST). Until that call, I think Cummins will continue to tumble, and as it gets closer to the low-end of its 52-week range ($79-$129), I am going to dedicate a slice of my homework and consider an entry. After all, the company made almost $2 billion on $18 billion in sales last year. Wait for that call, though.
I have been of the opinion that this summer will be a long one, a good time to get into high-yielding stocks, and I’m not the only one. Believe me, I am not a fan of wait-and-see investing, but we should understand that this is an election year, and folks, we have issues. So whether Mittens or Hope-Bama will be doing victory laps in the Oval Office, they have a great deal ahead of them, and Congress isn’t exactly the easiest bunch to get going in any direction. Apparently a vast majority of the legislative branch never played competitive, organized sports, working with a team to achieve a common goal.
Until election time rolls around, and we continue to be brow-beaten with Europe, growth-slowing, unemployment, QE3, and Iran blowing up toy boats in Ahmadinejad’s bathtub, I will take a look at the holdings in my portfolio, as should everyone. The highly discussed, slow-down sentiment has me considering an exit from one of my favorites this year, Westport Innovations (NASDAQ: WPRT), which shed about $2 off the share price after the Cummins release. Don’t get me wrong, I really like Westport. But because of the fact that they are a partner of Cummins, and with all the gloomy stunted growth out there, I am considering moving on after a nice ride with them. Also of note, with no dividend, Westport does not pay me for my patience; and that’s something we are all going to need this summer.
Motley Fool blogger Kyle Metivier owns shares of Westport Innovations and does not own any shares of Cummins Inc. The Motley Fool owns shares of Cummins and Westport Innovations. Motley Fool newsletter services recommend Cummins and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.