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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Caterpillar in Focus
Caterpillar (CAT - Free Report) is headquartered in Deerfield, and is in the Industrial Products sector. The stock has seen a price change of -8.05% since the start of the year. The construction equipment company is paying out a dividend of $0.86 per share at the moment, with a dividend yield of 2.37% compared to the Manufacturing - Construction and Mining industry's yield of 1.06% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $3.44 is up 11% from last year. Caterpillar has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.15%. Future dividend growth will depend on earnings growth as well as 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 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CAT expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $11.65 per share, with earnings expected to increase 69.33% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CAT presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
We are reissuing this article to correct a mistake. The original article should no longer be relied upon.
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Why Caterpillar (CAT) is a Great Dividend Stock
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Caterpillar in Focus
Caterpillar (CAT - Free Report) is headquartered in Deerfield, and is in the Industrial Products sector. The stock has seen a price change of -8.05% since the start of the year. The construction equipment company is paying out a dividend of $0.86 per share at the moment, with a dividend yield of 2.37% compared to the Manufacturing - Construction and Mining industry's yield of 1.06% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $3.44 is up 11% from last year. Caterpillar has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.15%. Future dividend growth will depend on earnings growth as well as 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 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CAT expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $11.65 per share, with earnings expected to increase 69.33% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CAT presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
We are reissuing this article to correct a mistake. The original article should no longer be relied upon.