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Caterpillar (CAT) Boosts Share Buyback Plan, Raises Dividend

Caterpillar’s CAT board of directors has approved an 8% hike in the quarterly dividend, raising the payout to $1.41 per share from $1.30, to boost shareholder value. This reflects a dividend yield of 1.72%, outpacing the industry’s average of 1.59% and the S&P 500’s 1.37%, based on the stock’s closing price of $243.32 on Jun 12, 2024. CAT has also added $20 billion to its existing share repurchase authorization, which was launched in 2022 with no expiration date. This entitles Caterpillar to repurchase up to $21.8 billion of its common stock.

The increased dividend will be paid out on Aug 20, 2024, to shareholders of record as of Jul 22, 2024. The company’s previous dividend hike of 8% was announced in June 2023. It has been paying out higher dividends to its shareholders for 30 straight years, thus maintaining its status as a dividend aristocrat. Caterpillar has paid out a cash dividend every year since its inception and a quarterly dividend since 1933. Check Caterpillar’s dividend history here.

These consistent dividend hikes reflect CAT’s strong balance sheet and liquidity position, which enable it to invest in growth while returning cash to shareholders. Caterpillar generated a record Machinery, Energy & Transportation (ME&T) free cash flow of $10 billion in 2023 and returned a record $7.5 billion to shareholders as share repurchases and dividends.

It generated an operating cash flow of $2.1 billion in the first quarter and ended the quarter with cash and cash equivalents of around $5 billion. It also had $2.2 billion in liquid marketable securities. ME&T free cash for the quarter was $1.3 billion. Caterpillar returned $5.1 billion to shareholders, which included about $0.6 billion in dividends and $4.5 billion in share repurchases. It aims to return all of its ME&T free cash flow to shareholders over time.

The company currently has a five-year dividend growth rate of 6.8%. CAT’s previous dividend translated to a payout ratio of 23.7%, which was higher than the peer average of 22.6%. Also, return on equity — a profitability measure of how prudently the company is utilizing its shareholders’ funds — is 57%, higher than the sector’s average of 22.8% and S&P500’s 26.6%.


Caterpillar has witnessed year-over-year growth in earnings for thirteen straight quarters despite supply-chain issues and inflationary pressure plaguing the industry. The backlog at the end of the first quarter was a solid $27.9 billion, which was up by $0.4 billion sequentially.

The company expects revenues in 2024 to be broadly similar to the record 2023 levels. This will be aided by healthy underlying end markets and services revenue growth. It maintains its broad spectrum of revenues, which range from $42 billion to $72 billion. According to the revenue levels, margins are expected to be between 10% and 22%.

For 2024, Caterpillar expects adjusted operating margin to be in the top half of the target range relative to the expected corresponding level of sales. Our model projects the adjusted operating margin to be around 19.9% on revenues of $66.7 billion.

The company’s Construction Industries segment is expected to benefit from the rising construction activities in the United States and other parts of the world. Growth in the Resource Industries segment will be aided by demand for commodities fueled by the energy-transition trend. In Energy & Transportation, strong order rates in most applications are expected to support revenues. This poises the company well for improved results in the forthcoming quarters.

Caterpillar expects free cash flow in 2024 to be in the top half of the range of $5-$10 billion, driven by healthy customer demand and strong operating performance. The company has budgeted $2-$2.5 billion for capital expenditure and will continue to prioritize investments focused on autonomy, alternative fuels, connectivity, and digital and electrification.

Caterpillar’s peer Deere & Company DE hiked its quarterly cash dividend by 9% in December 2023 to $1.47 per share. This was the second hike announced by the company in 2023.

Deere has a current dividend yield of 1.59% and a payout ratio of 17.7%. The company has a five-year dividend growth rate of 16.2%.

Price Performance

Over the past year, Caterpillar's stock has gained 34% compared with the industry’s 27.8% growth. The S&P 500 and the broader Industrial Products Sector have gained 17.2% and 14.5%, respectively.


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Zacks Investment Research

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Zacks Rank & Stocks to Consider

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

Some better-ranked stocks from the Industrial Products sector are Kaiser Aluminum KALU, Northwest Pipe Company NWPX. Each of these companies sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Kaiser Aluminium’s 2024 earnings is pegged at $4.12 per share, which indicates year-over-year growth of 50.4%. The consensus estimate for earnings has gone up 15% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 137%. KALU shares have gained 32.8% in the past year.

Northwest Pipe has an average trailing four-quarter earnings surprise of 11.48%. The Zacks Consensus Estimate for NWPX’s 2024 earnings is pinned at $2.46 per share, which indicates year-over-year growth of 17.7%. Estimates have moved 6% north in the past 60 days. The company’s shares have gained 11% in the past year.

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Caterpillar Inc. (CAT) : Free Stock Analysis Report

Deere & Company (DE) : Free Stock Analysis Report

Kaiser Aluminum Corporation (KALU) : Free Stock Analysis Report

Northwest Pipe Company (NWPX) : Free Stock Analysis Report

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