Caterpillar (CAT) Announces First Dividend Increase in 2 Years

We may earn money or products from the companies mentioned in this post.

As a long time dividend investor, one of my favorite things is getting annual raises from the companies we own stock in.

These companies give us raises in the form of dividend increases and most of them give us one every single year. The best part is that we get these raises for doing almost nothing … other than being a loyal shareholder!

Some of these raises are huge, like the 17% increase we recently got from Lowe’s (LOW). Others are small like the 1.3% increase we got recently from Caterpillar (CAT).

Collectively, when you add up all the raises from the 28+ stocks that we own, we are increasing our dividend income on average by 5% to 7% every single year. That is over $100 (and rising) of extra income each year!

Here are details on our latest dividend increase from Caterpillar (CAT).

CAT Shareholders Get a 1.3% Raise

Caterpillar just announced an annual dividend increase. This is the company’s first increase since 2015.

Company shareholders will now receive $0.78 in quarterly dividends for each share they own … instead of $0.77 for the past 8 quarters. It is not the growth that we like to see year to year, however the company finally raised their dividend after leaving it unchanged for 2 years.

This latest increase bumps the annual dividend for CAT up to $3.12 per share compared to $3.08 last year.

Overall, that is a 1.3% increase in dividend income.

That isn’t a huge bump, but after 2 years of no increases, it is a sign the company is trying to grow their dividend once again.

How Much Extra Income?

We currently own 20 shares of CAT in our Money Sprout Index.

This latest dividend increase has pushed our 12 month forward dividend income for CAT up to $62.40, compared to $61.60 last year.

That is an annual dividend income increase of $0.80

This is another reminder that our dividend income stream is constantly growing without any extra work from us. Whether they are large or small, all of these increases can really add up over the months and years.

Dividend Growth for CAT

We have owned shares of Caterpillar for 2+ years now. In that time, we got one raise … not including this most recent increase. The company maintained their dividend after that last raise, which is why we did not sell our shares. We typically only sell when their is a dividend cut.

The good news is that this year the company took the first step in giving out raises again by increasing their dividend.

Despite the unchanged dividend last year, we have still managed to build a yield on cost of 3.82% for the company. The past company raise helped to push our yield on cost up for this stock!

Take a look at the annual dividend payments since 2012 –

  • 2012 – $1.96
  • 2013 – $2.24
  • 2014 – $2.60
  • 2015 – $2.94
  • 2016 – $3.08
  • 2017 – $3.10 (projected)

Note – The 2017 dividend has been adjusted to reflect a dividend increase after the 2nd quarter.

As you can tell from the numbers above, CAT dividends look like they have been raised consistently. However, those numbers are based on a calendar year and don’t tell the whole story. Even so, the most recent dividend growth rate is very low.

Typically, we look for stocks with a 5-year or 10-year dividend growth rate of 6% or higher.

Here are a few average growth rates for shares of Caterpillar

  • 1 Year DGR – 0.65% (2016 to 2017)
  • 3 Year DGR – 6.16% (2014 to 2017)
  • 5 Year DGR – 9.77% (2012 to 2017)

Overall, the dividend growth of the company has been almost non-existent since we purchased our shares over 2 years ago.

But it is a good sign that CAT has started to increase their dividend again in 2017.

Caterpillar – Buy, Sell, or Hold?

We started buying shares of Caterpillar back in 2015 in our Robinhood account.

Since that time, we have earned $115.50 in dividends from the company. These shares are held in our Robinhood account, so we have not added any DRiP shares as the broker does not offer dividend reinvestment. However those dividends were used to buy additional shares of various stocks.

Here are a few stats from over the years of buying stock in Caterpillar

  • Total Investment – $1,633.70
  • Shares Purchased – 20.0
  • Dividends Earned – $115.50
  • DRiP Shares – 0.0

We have not actively purchased any new shares of CAT since November 2015.

At the time of this writing, Caterpillar does not meet our stock screen criteria based on the following metrics –

  • Current Yield – 2.98%
  • Payout Ratio – 75.5%
  • Forward P/E Ratio – 19.98

Overall, the current yield is above 2.5% that we look for at 2.98% and the forward P/E ratio is under 20 at 19.98.

However, the payout ratio is well above the 60% (or less) that we look for in a stock coming in at 75.5%.

Based on the very high payout ratio and the frozen dividend for 8 straight quarters, we consider Caterpillar to be a HOLD.

Despite concerns about the dividend, there is a silver lining to our shares of CAT – capital gains. The current share price of the company is about 28% higher than our average price per share we paid back in 2015. So without any dividends factored in, we have still been able to grow our net worth by owning this stock.

For now … we will monitor the dividend activity over the next 12 months for the company. Any dividend cuts and we will immediately sell our shares. Hopefully the company has been able to recover from their frozen dividend and will begin to accelerate their growth rate.

Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – CAT. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.

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