Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of their liquid investments is their primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company’s earnings paid out to shareholders; dividend stocks are often evaluated by their dividend yield, a metric that measures a dividend as a percent of the current stock price.
CAT Stock in Focus
Headquartered in Deerfield, Caterpillar (NYSE: CAT) is an Industrial Products stock that has seen a price change of -6.4% so far this year. The construction equipment company is paying out a dividend of $1.03 per share at the moment, with a dividend yield of 3.5% compared to the Manufacturing – Construction and Mining industry’s average yield of 1.87% and the S&P 500’s average yield of 1.96%.
In terms of dividend growth, the company’s current annualized dividend of $4.12 is up 25.6% from last year. Over the last five years, CAT has increased its dividend four times on a year-over-year basis for an average annual increase of 4.17%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. Caterpillar’s current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
CAT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $11.75 per share, with earnings expected to increase 4.72% from the year ago period.
The Bottom Line on CAT Stock
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
For instance, it’s a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It’s more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CAT is a compelling investment opportunity. Not only is it a strong dividend play, but CAT stock currently has a Zacks Rank of 3 (Hold).
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Caterpillar Inc. (CAT): Free Stock Analysis Report
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