Back to top

Image: Bigstock

Caterpillar (CAT) Rewards Shareholders With 8% Dividend Hike

Read MoreHide Full Article

Caterpillar Inc. (CAT - Free Report) recently hiked its quarterly dividend by 8% to $1.20 to boost shareholder value. The hike will take the company’s dividend yield from the current 1.93% to 2.09% — higher than the industry’s dividend yield of 1.92%.

Since 2010, Caterpillar’s quarterly dividend has grown from the payout of 42 cents per share to the current announced dividend of $1.20. The increased dividend will be paid on Aug 19, 2022, to shareholders of record on Jul 20, 2022. CAT has been a consistent payer of quarterly dividends since 1933. The last dividend hike of 8% to $1.11 was announced in June 2021. Due to the uncertainty surrounding the pandemic, Caterpillar had suspended share repurchases in April 2020 but maintained its dividend throughout the year.

Caterpillar has paid higher dividends to shareholders for 28 consecutive years and is a member of the S&P 500 Dividend Aristocrat Index. The Dividend Aristocrats is currently a group of 65 companies in the S&P 500 Index that have at least 25 consecutive years of dividend increases.

The company has a five-year dividend growth rate of 9.2% and a payout ratio of 41%, which is higher than the industry. The company outscores its closest competitor, Deere & Company (DE - Free Report) , which has a five-year dividend growth rate of 11.3% and a payout ratio of 21.9%.

Deere recently hiked its quarterly cash dividend by 8% to $1.13 per share. The company’s current dividend yield is 1.25%.

Caterpillar’s cash and liquidity position remains strong, with the company ending the first quarter of 2022 with cash and short-term investments of $6.5 billion. ME&T debt at the quarter’s end stood at $9.76 billion. Caterpillar’s current ratio is at 1.44, while times interest earned ratio is currently at 10.2. It expects to deliver ME&T free cash flow between $4 billion and $8 billion this year. Also, first-quarter 2022 backlog was an impressive $26.4 billion. Robust backlog levels, strong end-market demand across all segments and higher pricing are expected to bolster its top-line performance in the forthcoming quarters.

In North America, demand from both residential and non-residential construction will boost sales for Caterpillar’s construction equipment. The perked-up investment in roads, bridges, airports and waterways due to the U.S. Infrastructure Investment and Jobs Act represents a huge opportunity for Caterpillar. In the Asia Pacific barring China, higher commodity prices, housing strength, and increased government spending on infrastructure will support the construction equipment sales. Increased construction activity will drive machine demand in EAME and Latin America.

In Resource Industries, mining orders are picking up for the past few quarters, courtesy of improving metal prices. There has been improvement in heavy construction and quarry and aggregates for four straight quarters. The trend is expected to continue for the rest of the year. Investments in expanded offerings, services and digital initiatives are expected to fuel growth for the company.

Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Over the past year, Caterpillar stock has fallen 2.1% compared with the industry’s decline of 3.8%.

Zacks Rank

Caterpillar currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Graphic Packaging Holding Company (GPK - Free Report) and Myers Industries (MYE - Free Report) . Both GPK & MYE flaunt a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Graphic Packaging has an estimated earnings growth rate of 86.8% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 7.6%.

Graphic Packaging pulled off a trailing four-quarter earnings surprise of 7.2%, on average. The company’s shares have appreciated 14.8% in a year.

Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.

MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Myers Industries’ shares have gained 13% in the past year.