Caterpillar Hikes Annual Dividend 24 Consecutive Years (CAT)
By: Ned Piplovic,
Caterpillar, Inc. extended its record of raising annual dividend payouts to 24 consecutive years and offers a 2.0% yield, which is significantly higher than the average yield of the company’s industry peers.
Known for consistently delivering reliable dividend income, the company went through an 18-month period where the share price fell 40% between mid-2014 and the end of 2015, but rewarded its shareholders with extraordinary asset appreciation of more than 70% over the past 12 months.
The company’s next ex-dividend date will occur on January 19, 2018 and the pay date will occur almost exactly one month later, on February 20, 2018.
Caterpillar, Inc. (NYSE:CAT)
Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives for industrial application. The company’s Construction Industries segment offers backhoes, loaders, prep tractors, excavators, graders, asphalt pavers, etc.
CAT’s Resource Industries segment provides electric rope and hydraulic shovels, landfill and soil compactors, track and rotary drills, hard rock vehicle and continuous mining systems, as well as mining, off-highway and articulated trucks. Additionally, the Energy & Transportation segment offers reciprocating engine-powered generators, turbines, centrifugal gas compressor, diesel-electric locomotives and other rail-related products and services. Founded as the Caterpillar Tractor Co. in 1925, the company changed its name to Caterpillar Inc. in 1986 and its headquarters are currently in Peoria, Illinois.
The company’s current quarterly dividend of $0.78 is 1.3% higher than the $0.77 dividend payout from the same quarter of the previous year. The current dividend distribution converts to a $3.12 annualized dividend amount and a 2% dividend yield. While investors might disregard the 2% yield as too low compared to some other sectors, that is an above-average yield in the capital-intensive industrial goods sector and even more competitive in the farm and construction machinery segment. Compared to Caterpillar’s competitors, its current 2% yield is 73.4% higher than the 1.13% average yield of the overall industrial goods sector and 142% above the 0.81% average yield for all companies in the farm and construction machinery segment.
Additionally, CAT has enhanced its annual dividend payouts for the past 24 consecutive years. Just since 1998, the company has hiked its annual dividend distribution almost six-fold because of consecutive annual boosts at an average growth rate of 9.1% per year.
Investors looking for a steady dividend income from the Caterpillar stock received an extraordinary present in the form of its 70% share price growth in the past 12 months. After dropping 40% between July 2014 and the end of 2015, the share price has been in a significant uptrend since January 2016. The share price traded relatively flat over the first 60 days in 2017 and eventually dropped 2.4% to reach its 52-week low of $91.31 by March 9, 2017.
However, since the 52-week low in March, the share price rose nearly 75% before closing on January 4, 2018 at its new all-time high of $159.44. This new peak price is 70.4% higher than it was one year earlier and 170% higher than the low from January 2016.
Some analysts argue that Caterpillar’s current price to sales (P/S) ratio is too high – it is above 2.2 — and that the company’s current $44 billion annual revenue does not support the current share price. A more realistic P/S ratio of 1.2 would require a 75%-plus increase in annual revenue to support the current share price level.
Additionally, Caterpillar could face a tax liability of up to $2 billion, depending on the outcome of an investigation by the U.S. Commerce Department and the IRS regarding a potential tax avoidance scheme of funneling foreign profits through the company’s Caterpillar SARL subsidiary in Switzerland.
However, if Caterpillar manages to avoid or significantly reduce this potential tax liability and if the U.S. Congress passes an infrastructure spending bill, the share price could break the current resistance and continue rising well above $160 per share.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.