In an effort to deliver incremental returns to shareholders, the Board of Caterpillar Inc. (CAT - Analyst Report) has approved a 15% increase in its quarterly dividend, marking the highest percentage increase in dividend since the financial crisis of 2008.
Caterpillar will now pay 60 cents per share to its shareholders, 8 cents more than the prior dividend of 52 cents per share. The increased dividend will be paid on Aug 20, 2013, to shareholders of record as of July 22, 2013.
The dividend hike demonstrates the company’s continued focus on healthy free cash flow generation and its balance sheet strength. The current dividend hike comes exactly after a year. The last dividend hike of 13% from 46 cents to 52 cents was announced in June 2012.
In addition to dividend hike, Caterpillar is planning to resume share repurchases in the second quarter 2013 and repurchase about $1 billion of shares under an accelerated stock repurchase program.
Despite posting disappointing first-quarter 2013 results, Caterpillar hiked dividend in order to maintain its strategy to deliver higher returns to stockholders. Its earnings per share slumped 45% year over year to $1.31 in the quarter, primarily due to reduced mining demand and decline in inventory. It also trailed the Zacks Consensus Estimate of $1.34.
Caterpillar, which belongs to the machinery and construction industry along with H&E Equipment Services Inc. (HEES - Snapshot Report), Astec Industries, Inc. (ASTE - Analyst Report) and Terex Corp. (TEX - Analyst Report), had cash and short-term investments of $5.98 billion as of Mar 31, 2013, up from $5.49 billion as of Dec 31, 2012. Total debt-to-capital ratio improved to 69% as of Mar 31, 2013, from 70% as of Dec 31, 2012.
Citing weak demand for its mining equipment, Caterpillar trimmed its sales outlook to a range of $57 billion to $61 billion from the previous range of $60 billion to $68 billion. Moreover, Caterpillar now expects to earn $7.00 per share in 2013, down from the earlier projection of between $7.00 and $9.00 per share.
Even though Caterpillar will benefit from the recovery in the U.S. construction sector, the recent loss of sales momentum, declining backlog, negative impact of the European debt crisis and slowdown in economic growth in China remain concerns.
Peoria, Ill.-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services and Progress Rail Services.
Caterpillar currently retains a Zacks Rank #4 (Sell).