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In my on-going Special Report: 10 Best Stocks in 10 Sectors (running on my subscription site) I laid out the case for buying Cummins (CMI) now a a dividend stock with the expectation that as the current depression over the share price of industrial exporters lifts, the buy will also generate very attractive capital gains.

Here’s the logic that I laid out in the Special Report: “By now I think it’s clear that management smarts are at least as important as technology in making money in the transition to electric vehicles. (Tesla (TSLA) and Elon Musk make up a good case study.) And I think it’s reasonable to assume on initial reaction to Tesla’s announcement of an intention to enter the electric truck market that dealer infrastructure will be make or break for the introduction of this new technology. If all of that is true–whether the company in question is a pure play electric vehicle start up or a legacy vehicle company trying make the transition to an electric vehicle future–then my pick in this sub-sector is truck-engine maker Cummins. One of the big unknowns for electric vehicles is when the truck market will make the transition, first to gasoline-electric hybrids and then to all electric vehicles. Cummins looks to be doing the solid conservative job I expect from the management history of this company of continuing to push diesel engine technology (to raise efficiency and to lower emissions) while introducing hybrid products (for buses and lighter trucks) and setting up a new business unit for electric trucks. Unlike many technology companies Cummins has chosen to make this new business transparent to investors by breaking out reporting on the unit. Right now all there is to report is spending on research & development–in the second quarter the segment lost $21 million on an EBITDA basis. Cummins seems to be planning for an age of electric vehicles but not to be in any rush to kill its market-dominant diesel engine business. If Cummins is wrong about the speed of that transition, it has the huge infrastructure–7400 dealers globally–and reputational–with high marks from customers for quality and durability–advantages that would enable the company to successfully play catch up. Morningstar estimates that Cummins’ return on invested capital will climb to 17% by 2020 from 12% in 2017. That has enabled Cummins to raise its dividend by 5.6% in the second quarter and to increase its commitment to return cash to investors (through dividends and share buybacks) to a goal of 75% of cash flow from operations from from the prior goal of 50%. Cummins is down 19.3% in 2018 though August 9. That has pushed the dividend yield up to 3.21%. As I’ve done in the past, I’m adding Cummins to my Dividend Portfolio on that increase in dividend yield with the fall in share price.”