It’s no secret that shares of Caterpillar (CAT) have hit multi-year lows. Caterpillar is a cyclical company that manufactures mainly construction and mining equipment. I believe cyclical companies should be bought on weakness especially since they have many more down cycles than other companies.
I had set an alert in my E*Trade account for when CAT hit a yield of 4%. That happened yesterday and I pulled the trigger and purchased 40 shares of CAT at $75.59/share. These 40 shares of CAT will provide income of $123.20 over the next 12 months without any further dividend raises.
Speaking of dividend raises, CAT recently increased their dividend by 10%. On June 10th, the company announced an increase to the quarterly dividend from 0.70 to 0.77 or a 10% increase. Their dividend is still easily covered from their cash flows and I’m not too worried about the company’s financial picture in the long-term.
CAT just today announced an accelerated buyback, of 1.5 Billion worth of shares or 3.3% of the float in the 3rd quarter of this year. It’s no surprise that CAT stock jumped up 3.3% today on the news.
CAT is a Dividend Contender, having raised its dividend for 22 straight years. The stock chart over this period looks really wavy but CAT has managed to keep increasing earnings through each cycle. If you are willing to stomach a stock drop of 20% or more but to have it rebound 30% a few years later, then CAT may be for you.
If you’d like to get some indirect exposure to the material sector, CAT could be a good bet. As soon as commodities start increasing again, a lot more of CAT’s machinery will be needed.