Tuesday, January 6, 2015

Caterpillat at $80. Digging for Dividend Machines

Sometimes, during these market swoons, I buy what I call almost Dividend Machines.   These are really good stocks that just don’t quite meet my Dividend Machine criteria but a covered call that I sell immediately makes up for the difference.   Apple, symbol,  AAPL would be a typical example; another would be Qualcomm, symbol QCOM.

Buy and Hold

During these swoons, I also look for a 2015 Dividend Machine stock that I can add to my portfolio, or a stock I already own that I want to accumulate.   This would be a stock I expect to hold for a long, long time.   When I say I hold for a long, long time, I mean that I hold a stock as long as it delivers ever increasing income and those increases are great enough to justify a less than 3.5% current yield.  Dividend Machines have been increasing in price and many no longer pay 3.5% on the current value even with the market swoons.   I may sell my position in a really good stock and move it to one that yields more.   GPC, Genuine Parts is an example.  

Caterpillar at $80

Today, I am looking at Caterpillar, symbol CAT.   This is such a volatile stock that you can get in and find big swings in the stock price and use that to your advantage.   If you get in at a 3.5% yield, I would call CAT a Dividend Machine.  At $80 CAT is a Dividend Machine.   I could hold CAT a long, long, time and I could move in and out if I want to.

Talk about seeking beta; CAT has traded between $85 and $111 during the past 52 weeks.   You have to go back to October, 2011 to find CAT at $80 or below.   And, it did not stay there long.  But I am in the hunt.

CAT Dividend Machine Fundamentals

Caterpillar’s Dividend Machine fundamentals are noted in the table below.   

The world will always need bulldozers and backhoes; so I am not worried about the long term viability of CAT and they have a strong dividend history.   Average annual dividend increases over the past five years are 13.3%.  CAT is financially stable with a D/E ratio of 1.5 which is less than the industry standard of 1.85 (according to MSN Investing website.)

Wouldn’t it be really nice to get it before the ex dividend date of 1/15/2015.    Right now I see no compelling calls so I will wait to about $80. 


Disclosure:  Long CAT