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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Caterpillar in Focus
Caterpillar (CAT) is headquartered in Deerfield, and is in the Industrial Products sector. The stock has seen a price change of 14.4% since the start of the year. Currently paying a dividend of $1.11 per share, the company has a dividend yield of 2.13%. In comparison, the Manufacturing - Construction and Mining industry's yield is 0.81%, while the S&P 500's yield is 1.39%.
Looking at dividend growth, the company's current annualized dividend of $4.44 is up 7.8% from last year. Caterpillar has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 8.63%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Caterpillar's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
CAT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $10.08 per share, which represents a year-over-year growth rate of 53.66%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CAT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Caterpillar Inc. (CAT) : Free Stock Analysis Report
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