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Caterpillar (CAT) Dividend Stock Analysis
The Caterpillar dividend has been paid quarterly since 1933 and increased for 28 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.
Current Dividend Annualized: $4.44
Caterpillar (CAT) Intrinsic Value – Margin of Safety Analysis
(updated May 2022)
Normalized Diluted Earnings Per Share (TTM): $11.92
Free Cash Flow Per Share (TTM): $5.38
Cash Flow From Operations (CFO) Per Share (TTM): $10.22
Estimated Intrinsic Value: $161
Target Buy Price Based on Required Margin of Safety = $124
(Required Margin of Safety Based On Risk Stability Grade:
A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)
Target SELL Price Based on Estimated Intrinsic Value = $177
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk / Stability Grade: C
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: C
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Business Quality Grade: C
A grade indicates earnings quality is high or far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
Earnings Report: 3/31/22
AAAMP Portfolios Position Disclosures:
Dividend Growth & Income – None
Treasure Trove Twelve – None
Global Dividend Balanced – None
Global Value – None
Global Value Aggressive – None
High Yield – None
Industry: Farm & Construction Equipment
Caterpillar is an iconic manufacturer of heavy equipment, power solutions, and locomotives. It is currently the world’s largest manufacturer of heavy equipment with over 15% market share in 2020.
The company is divided into four reportable segments: construction industries, resource industries, energy and transportation, and Caterpillar Financial Services. Its products are available through a dealer network that covers the globe with over 2,000 branches maintained by 168 dealers.
Caterpillar Financial Services provides retail financing for machinery and engines to its customers, in addition to wholesale financing for dealers, which increases the likelihood of Caterpillar product sales.
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.
The last decade has brought slower economic growth (especially emerging markets), a strong US dollar, and a collapse in commodity prices which has caused Caterpillar to make tough decisions. Plant closures and job cuts have been the norm in order to manage a challenging environment. The recent uptick in commodity prices provides hope for a long term turnaround that would great benefit Caterpillar.
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.
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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.