Monday, March 9, 2015

Digging for Dividends with Caterpillar CAT

Dow is back up today but I am still looking for a stock on sale and I have found one in Caterpillar.  

Caterpillar is very weak.   Fifty two week high is about $111 and it is trading at around $81 today.   That is quite a correction – thirty seven percent.

The world will always need CAT’s equipment.   Populations grow and develop.  Infrastructure needs to be build and repaired.   Caterpillar is not the only company in this space but it is fundamentally sound.   Let’s look at CAT’s Dividend Machine fundamentals as well as a call that is available today.

Dividend Machine Fundamentals

Caterpillar earned $5.87 during the past four quarters and paid out dividends of $2.80.   Their current quarterly dividend is $.70 per share.   I would expect the next ex-dividend date to be about April 15, 2015.  The yield at the intraday price of $80.87 is 3.46%.    Clearly CAT meets the criteria of earning more than it pays out in dividends.   In order to be a Dividend Machine, I want a 3.5% yield so I will put in a buy at $80.   If I get that buy, I will add CAT to the 2015 Dividend Machine Portfolio.

Dividend increases are very important to conservative income investors and CAT knows how to dig for dividends.  CAT’s average annual dividend increase over the past five years has been 13.33%.   

Debt to equity ratio (D/E) is another important variable and again CAT makes the grade with a D/E of 1.5.    Industry standard is 1.99.   These companies need a lot of capital to build those big machines.

The table below presents Caterpillar’s Dividend Machine Fundamentals.

CAT Covered Call

I often times add to positions when I can simultaneously sell a covered call.   CAT has a May $87.50 covered call selling at about $.90.    Take a look at the covered call calculator presented below to learn how this call can deliver 10% yield gain.

Consider Caterpillar for the income producing portion of your portfolio.


Disclosure:  Long CAT with call positions

Update:  CAT did break $80 and on 3/9 I added CAT to the 2015 Dividend Machine Model Portfolio at a price of $79.94.