CAT Hikes Dividend, Affirms Outlook

Caterpillar Inc. (CAT - Analyst Report) upped its quarterly dividend by 2 cents to 46 cents to boost shareholder value. Further, in light of increased demand for its equipment the company maintained its outlook for 2011 -- sales and revenues in a range from $52 to $54 billion and EPS between $6.25 and $6.75.    

The dividend hike of 2 cents translates to a 5% increase from the prior dividend of 44 cents. The increased dividend will be paid on August 20, 2011, to stockholders of record on July 20, 2011.

Caterpillar has been a consistent payer of quarterly dividends since its formation in 1925. The current dividend hike comes exactly after a year. The last dividend hike of 5% from 42 cents to 44 cents was announced on June 9, 2010.

The previous hike, however, had come after a hiatus of two years as the company had refrained from hiking dividends during the economic recession and maintained its dividend rate of 42 cents.

Caterpillar’s dividend increase follows the dividend hike announced by its closest competitor, Deere & Co. (DE - Analyst Report) on May 24, 2010. Deere increased its dividend by 17%, or 6 cents to 41 cents. Caterpillar’s current annualized dividend yield of 1.88% falls behind Deere’s annualized dividend yield of 2.05%. Caterpillar’s dividend payout ratio of 29.88% is however higher than Deere’s 22.01%.

Caterpillar continues to focus on strengthening its balance sheet and improving cash flow. Caterpillar had cash and short-term investments of $4.87 billion as of March 31, 2011, up from $3.59 billion as of December 31, 2010. Total debt stood at $29.59 billion as March 31, 2011.

Caterpillar’s first-quarter 2011 EPS jumped to an all-time quarterly record of $1.84 from 36 cents in the year-ago quarter, driven by higher sales volume. Revenues surged 57% to $12.95 billion on the back of economic growth and improvement in machine demand.

For 2011, Caterpillar’s reaffirmed its guidance of revenues in the range of $52 billion to $54 billion and EPS of $6.25 to $6.75, the highest estimated annual profit in the company’s history.

However, the outlook does not include the acquisitions of MWM Holding GmbH or Bucyrus International Inc. (BUCY) as they have not yet closed. We expect a revision in guidance and our estimates once these deals conclude.

The demand for Caterpillar’s heavy equipment is on the rise given improving economic conditions, particularly in developing economies. Caterpillar is ramping up production to meet the surge in demand. Needless to say, Caterpillar’s strong brand name, pricing power and global dealer network place it in an advantageous position to exploit the growing need for infrastructure development worldwide.

We expect Caterpillar to maintain its revenue growth trajectory aided by growth in emerging markets as well as construction and mining in developing countries. Increased domestic and international infrastructure spending, improved economic conditions and benefits from the yet-to-be closed acquisitions will support revenues over the next several years. The shares of Caterpillar presently retain a Zacks #1 Rank (short-term Strong Buy Rating) on the stock.

Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base.

Caterpillar operates three divisions – Machines, Engines and Financial Products. Caterpillar also competes with the likes of CNH Global NV (CNH - Snapshot Report), Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY - Snapshot Report).

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