The company’s last dividend increase was in June 2012 when the Board of Directors approved a 13% increase to 52 cents/share. The company’s largest competitors include Joy Global (JOYG), Terex (NYSE:TEX) and Komatsu (KMTUY).
Over the past decade this dividend growth stock has delivered an annualized total return of 19.30% to its shareholders.
The company has managed to deliver a 23% average increase in annual EPS since 2002. Analysts expect Caterpillar to earn $9.62 per share in 2012 and $10.51 per share in 2013. In comparison, the company earned $7.40/share in 2011.
In emerging markets in Asia and South America, demand for equipment to install power lines and bulldozers for infrastructure remains vibrant. Over 70% of the company’s revenues are derived from outside North America. It’s machines are essentially building the infrastructure of the world. The key factors behind Caterpillar’s long term growth include construction activity in the world’s emerging economies, government spending on infrastructure, as well as growth in the global economy. Strategic acquisitions, such as the purchase of Bucyrus are expected to bring massive synergies in terms of purchasing and engineering as well as the potential to bring in more business.
The return on equity has increased from 14.40% in 2002 to 41.60% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 10.10% per year over the past decade, which is lower than the growth in EPS.
A 10% growth in distributions translates into the dividend payment doubling almost every seven years. If we look at historical data, going as far back as 1993 we see that Caterpillar has actually managed to double its dividend every four years on average.
The dividend payout ratio has been decreasing over the past decade, falling from almost 61% in 2002 to 24% in 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Caterpillar is attractively valued, trading at 8.60 times earnings and yielding 2.50%. I would consider adding to my position in the stock subject to availability of funds.
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