Caterpillar (CAT) Dividend Stock Analysis
The Caterpillar dividend has been paid quarterly since 1933 and increased for 23 consecutive years;
qualifying the company as a Dividend Contender.
Current Dividend: $3.08
Dividend Yield: 2.9%
Cash Dividend Payout Ratio: 46 %
Market Capitalization: 62 B
Enterprise Value: 91 B
Industry: Farm & Construction Equipment
When it comes to infrastructure, energy, and natural resource development, customers look to Caterpillar. Caterpillar is the world’s leading manufacturer of construction and mining equipment, natural gas and diesel engines, industrial gas turbines, and locomotives for rail.
Caterpillar is in a very cyclical business that has had revenues fluctuate quite wildly between 32 and 65 billion over the last 10 years. During the same time period net income fluctuated between less than 1 billion to 5.6 billion.
Caterpillar sells its products through 3500 dealers throughout the world. Caterpillar Financial Services provides financing to customers; a big pillar in the foundation of the company’s success.
Caterpillar is a powerful brand with competitive advantages supported by its strong dealer network. That dealer network not only provides product distribution but skilled product service and repairs in 130+ countries.
This network increases the service life of Caterpillar products and adds value in the aftermarket. Used equipment owners want to know equipment has been properly maintained and serviced.
Caterpillar has a reputation for competing on total cost of ownership. While quality may initially cost a little more, increased uptime, longer service periods, and better re-sale prices provide additional value for the Caterpillar customer. The company also has the competitive advantage of being able to provide customer financing.
The company is number one or two in market share for every one of its products. Its worldwide construction market share is near 20%, which is nearly twice as much as its nearest rival, Kamatsu.
Caterpillar is being challenged on both ends of the spectrum; the commodity super cycle has ended and the long life of their large machinery is allowing customers to delay replacing their current fleets.
A slow global economy (especially emerging markets), a strong US dollar, and a collapse in commodity prices has Caterpillar making tough decisions. Plant closures and job cuts are ongoing in order to manage a challenging environment.
The company uses its finance arm and established dealerships to provide added value to current Caterpillar equipment owners. A smooth rollover from older to newer equipment is a benefit to all parties involved.
Caterpillar has been leveraged toward coal mining and the China construction boom. These are trends that appear to be reversing to the detriment of CAT.
The mining of iron ore, coal, copper, and mining in general is extremely cyclical. A prolonged slowdown in these areas is not only possible, but some believe probable. The company must restructure in a way that it can prosper in a different, if not harsher, economic environment.
Dividend Analyzer Checklist
(updated January 2017)
Dividend Safety Score (13/33 points)
Dividend Per Share (ttm): $3.08
Dividend Payout Ratio (ttm): 299%
Dividend Per Share (10 Year Growth): 12.4%
Cash From Operations (CFO) Per Share (ttm): $9.81
CFO Dividend Coverage (CFO / DPS): 3.2 (3/6 points)
Free Cash Flow (FCF) Per Share (ttm): $4.26
FCF Dividend Coverage (FCF / DPS): 1.4 (3/6 points)
Net Financial Debt: $30997 M
Total Assets: $76402M
Net Financial Debt / Total Assets: 41% (3/12 points)
Net Financial Debt to EBITDA (ttm): 794%
Total Liabilities to Assets Ratio (Qtr.): 80%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (8/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 2.6% (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: -1.7% (0/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 7.9% (6/6 points)
Operating Earnings Yield (ttm): 1.9% (0/7 points)
Net Income (ttm): $600 M
Gross Profit (ttm): $10789 M
Total Assets: $76402 M
Gross Profitability Ratio = GP / Total Assets: 14% (2/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 5%
Return on Invested Capital (ROIC): 1%
Return on Invested Capital (ROIC) (5 Year Median): 7%
Return on Invested Capital (ROIC) (10 Year Median): 7%
Valuation Score (11/34 points)
Free Cash Flow Yield (ttm): 4.5% (5/9 points)
EV to EBIT (ttm): 49.1 (0/9 points)
EV to EBITDA (ttm): 18.0 (0/9 points)
PE10: 15.9 (6/7 points)
Price to Sales Ratio (ttm): 1.2
Price to Book Value (ttm): 3.6
Price to Earnings Ratio (P/E) (ttm): 91.7
TOTAL POINTS – (32/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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(updated January 2017)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / AVOID
Looking For Exposure to Industrial Sector / AVOID
Deep Value Investors / AVOID
Caterpillar is ranked #208 (out of 246) overall and #52 (out of 56) in the Industrial Sector by the Dividend Analyzer.
There is a lot of problems for Caterpillar to overcome. There are much better opportunities elsewhere.
Portfolio Position Disclosures:
DVB Foundation Portfolio – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None
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