Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company is a member of the dividend achievers index, and has boosted distributions for 19 years in a row.
The company’s last dividend increase was in June 2012 when the Board of Directors approved a 13% increase to 52 cents/share. The company’s largest competitors include Joy Global (JOYG), Terex (TEX) and Komatsu (KMTUY).
Over the past decade this dividend growth stock has delivered an annualized total return of 19.30% to its shareholders.
The company has managed to deliver a 23% average increase in annual EPS since 2002. Analysts expect Caterpillar to earn $9.62 per share in 2012 and $10.51 per share in 2013. In comparison, the company earned $7.40/share in 2011.
In emerging markets in Asia and South America, demand for equipment to install power lines and bulldozers for infrastructure remains vibrant. Over 70% of the company’s revenues are derived from outside North America. It’s machines are essentially building the infrastructure of the world. The key factors behind Caterpillar’s long term growth include construction activity in the world’s emerging economies, government spending on infrastructure, as well as growth in the global economy. Strategic acquisitions, such as the purchase of Bucyrus are expected to bring massive synergies in terms of purchasing and engineering as well as the potential to bring in more business.
The return on equity has increased from 14.40% in 2002 to 41.60% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 10.10% per year over the past decade, which is lower than the growth in EPS.
A 10% growth in distributions translates into the dividend payment doubling almost every seven years. If we look at historical data, going as far back as 1993 we see that Caterpillar has actually managed to double its dividend every four years on average.
The dividend payout ratio has been decreasing over the past decade, falling from almost 61% in 2002 to 24% in 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Caterpillar is attractively valued, trading at 8.60 times earnings and yielding 2.50%. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: None
- Dividend Achievers Offer Income Growth and Capital Appreciation
- Five Consistent Dividend Payers Boosting Distributions
- The case for dividend investing in retirement
- Money Management for Dividend Investors
Warren Buffett is the most successful investor of all time. Warren Buffett was able to keep learning about investments and business from t...
When selecting a dividend stock, investors should look at the dividend last. Income investors should first focus on profitability when inves...
As a dividend investor, my main goal is to attain financial independence when dividend income exceeds expenses by an adequate margin of saf...
There are many risks to investing . One of the major risks that could ruin a portfolio’s chances of generating adequate dividends are p...
One of my favorite aspects of dividend growth investing is the ability to receive more passive dividend income, simply because I made the ri...
In my investing, look for businesses I can understand that have some sort of a competitive advantage that translates into consistent earn...
Rebalancing is the process where investors sell an asset that takes an above average allocation in their portfolio, and use the proceeds to ...
There are several factors that drive future investment returns. The important drivers behind future returns on equity investments include: ...
Before I begin my message, I wanted to wish all my readers a Happy 4th of July. And I wanted to thank all of those military members for keep...
Wal-Mart Stores Inc. (NYSE:WMT) operates retail stores in various formats worldwide. The company operates through three segments: Walmart U....