Monday, June 29, 2015

Caterpillar adding to Dividend Machine CAT

I last wrote about Caterpillar, symbol CAT, in March of this year.  The subject was covered calls on this marginal Dividend Machine because at that time CAT was not quite a solid Dividend Machine but with covered calls, it is an income machine.

Today, I reiterate a buy on CAT

Here we are three months later and due to an aggressive quarterly dividend increase from $.70 to $.77, CAT now solidly qualifies as a 2015 Dividend Machine.   To remind you the criteria for a stock to be a Dividend Machine in 2015 are:  earnings greater than dividend paid out, a yield of 3.5% or more, average annual dividend growth of at least 4% over the past five years and a D/E ratio of 1 or less or equal to industry standards.

Since I am profiling this stock when the market is closed, I will use Monday's closing price of CAT for CAT's basis.   Theoretically, CAT's price could increase so much on Monday that the yield falls below the required 3.5% but I highly doubt it.

Dividend Machine Fundamentals:

Below is a table that illustrates Caterpillar's Dividend Machine bona fides.  You will see that during the last four quarters CAT earned $6.24; during the same period, CAT paid our $2.80 in dividends.  Their new quarterly dividend of $.77 is a forward annualized yield of 3.547% using the closing price of $86.82 on Friday June, 26 2015.  Dividend appreciation has averaged 15% over the past five years.  In July 2010 CAT paid our $.44 per share and this July, the dividend is $.77 per share.  D/E ratio according to MSN money is 1.58 and the industry standard is 2.02.

Since I wrote about CAT in March, the price has increased from about $81 to about $87.  Not quite a 10% increase.   Yet, this stock is still well below the 52 week high of $111.36. 

CAT is frustrating stock and it has moved into and out of the realm of Dividend Machines.  With the covered call potential, I will be adding CAT and hope that you too will consider CAT for the income producing portion of your portfolio.


Disclosure:  Long CAT with calls