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Are You Looking for a High-Growth Dividend Stock? Caterpillar (CAT) Could Be a Great Choice

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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. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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

Based in Deerfield, Caterpillar (CAT - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of 6.85%. The construction equipment company is currently shelling out a dividend of $1.11 per share, with a dividend yield of 2.01%. This compares to the Manufacturing - Construction and Mining industry's yield of 1.71% and the S&P 500's yield of 1.47%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.44 is up 3.7% 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 9.24%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Caterpillar's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.

CAT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $12.20 per share, which represents a year-over-year growth rate of 12.86%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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