Caterpillar Inc (NYSE:CAT) has pleased shareholders over the past 10 years, paying out an average dividend of 3.00% annually. The company currently pays out a dividend yield of 2.01% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Caterpillar should have a place in your portfolio. Check out our latest analysis for Caterpillar
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment or significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is it able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Caterpillar fare?
Caterpillar has a trailing twelve-month payout ratio of 83.28%, which means that the dividend is covered by earnings. However, going forward, analysts expect CAT’s payout to fall to 22.98% of its earnings, which leads to a dividend yield of around 2.12%. However, EPS should increase to $10.3, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of CAT it has increased its DPS from $1.44 to $3.12 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock. In terms of its peers, Caterpillar generates a yield of 2.01%, which is on the low-side for Machinery stocks.
With this in mind, I definitely rank Caterpillar as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three pertinent factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for CAT’s future growth? Take a look at our free research report of analyst consensus for CAT’s outlook.
- Valuation: What is CAT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CAT is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.