Caterpillar (NYSE:CAT) Will Pay A Larger Dividend Than Last Year At $1.41
Caterpillar Inc. (NYSE:CAT) has announced that it will be increasing its periodic dividend on the 20th of August to $1.41, which will be 8.5% higher than last year's comparable payment amount of $1.30. Based on this payment, the dividend yield for the company will be 1.5%, which is fairly typical for the industry.
See our latest analysis for Caterpillar
Caterpillar's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Caterpillar's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 3.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.
Caterpillar Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $2.40 in 2014, and the most recent fiscal year payment was $5.20. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Caterpillar has impressed us by growing EPS at 16% per year over the past five years. Caterpillar definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Caterpillar Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Caterpillar is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Caterpillar has 3 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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