Caterpillar Inc. (NYSE: CAT) is set to trade ex-dividend in four days. This means that investors who buy shares on or after April 23 will not receive the dividend, which will be paid on May 20.
Caterpillar’s upcoming dividend is $ 1.03 per share, after the past 12 months, when the company has distributed a total of $ 4.12 per share to shareholders. Calculating the value of last year’s payouts shows Caterpillar has a final 1.8% return on the current stock price of $ 233.36. Dividends are an important source of income for many shareholders, but the health of the company is crucial to sustaining these dividends. So we need to check if dividend payments are covered and if profits are increasing.
Discover our latest analyzes for Caterpillar
Dividends are typically paid out of business income, so if a business pays more than it earned, its dividend is usually at a higher risk of being reduced. Caterpillar paid out more than half (75%) of its profits last year, which is a steady payout ratio for most companies. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Over the past year, it has paid out 53% of its free cash flow as dividends, which is within the range that most companies have come to expect.
It is positive to see that the Caterpillar dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a higher. safety margin before the dividend is reduced.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with steadily increasing earnings per share are generally the best dividend-paying stocks because they generally find it easier to increase dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to sell heavily at the same time. That’s why it’s a relief to see that Caterpillar earnings per share have grown 5.4% per year over the past five years. Decent historic growth in earnings per share suggests that Caterpillar has indeed increased shareholder value. However, he now pays more than half of his profits as dividends. If management further increases the payout ratio, we will take this as an unspoken signal that the company’s growth prospects are slowing.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Since our data began 10 years ago, Caterpillar has increased its dividend by an average of 8.9% per year. It is encouraging to see the company increasing its dividends as profits rise, which at least suggests an interest in the company in rewarding shareholders.
From a dividend standpoint, should investors buy or avoid Caterpillar? Earnings per share grew modestly, and Caterpillar paid just over half of its earnings and free cash flow last year. All things considered, we’re not particularly excited about Caterpillar from a dividend standpoint.
So if you want to dig deeper into Caterpillar, you will find it useful to know the risks that this stock faces. We have identified 3 warning signs with Caterpillar (at least 1, which is significant), and understanding them should be part of your investment process.
However, we wouldn’t recommend just buying the first dividend-paying stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
When trading Caterpillar or any other investment, use the platform seen by many as the trader’s gateway to the global market, Interactive brokers. You get the cheapest * trading in stocks, options, futures, currencies, bonds and funds worldwide from a single integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Annual Online Review 2020
Do you have any comments on this article? Concerned about the content? Get in touch with us directly. Otherwise, email the editorial team (at) simplywallst.com.