32 Years Of Stable, 8% Dividend Growth
One of the reasons we like dividends is because they’re stable.
Getting cash in our accounts every quarter (or every month) helps us sleep well at night.
However, stable doesn’t mean flat.
We need our dividend checks growing… otherwise they lose value from inflation.
So, a stable dividend is great, but a dividend with a stable growth rate is even better.
And Caterpillar (ticker: CAT) is a great company with a nice, stable dividend growth rate.
Caterpillar is the largest equipment manufacturer in the world with a market share around 15%.
Last year, Caterpillar made almost $9 billion in profit, so the company is massive.
A lot of those profits are being passed to shareholders through dividends.
Here’s a chart showing its dividend over the past two decades.
Outside of some slow growth in 2016, Caterpillar has raised its dividend by around 8% each year for over 20 years.
It’s an incredible run of growth, and it shows no signs of stopping.
Caterpillar is raising its quarterly dividend to $1.63, which is 8% higher than its last payment.
If you want the higher dividend, you can’t wait too long.
You must own Caterpillar by July 17 (Friday) to get its next dividend.
Caterpillar’s run of historical dividend growth is amazing.
Its next increase marks 32 straight years of dividend growth.
And if Caterpillar maintains an 8% growth rate, the dividend will double every 9 years!
Can the large equipment manufacturer keep it up?
Based on free cash flow, Caterpillar’s dividend payout ratio is only 35%.
So Caterpillar has plenty of room to continue to grow its dividend before it runs out of cash.
Plus, Caterpillar is excellent at generating free cash flow.
Its free cash flow margin is over 11%, which is one of the highest in the Industrials sector.
Free cash flow margin measures how well a company converts revenue into free cash flow, so it’s a really important metric for dividend investors.
Now, it isn’t all amazing news for Caterpillar.
Its stock price has more than doubled over the past 12 months.
Great news if you already own Caterpillar… not so great if you’re looking to start a position.
So while the dividend growth is impressive, Caterpillar’s dividend yield is only 0.7%.
Plus, its price-to-earnings ratio of 45x is one of the highest among its peers.
However, if you’re patient, Caterpillar is still a great dividend stock.
Sometimes we need to be willing to pay more for a company with such incredible dividend growth prospects.
And Caterpillar is so much more than just dividend growth.
Its return on equity (ROE) of 48% is one of the highest in the entire Industrials sector, and near an all-time high for the company.
If you’re looking for dividend growth, and don’t mind the lower yield, Caterpillar is a great pick.
You just need a little patience before the money really starts to roll in.
What are some of your favorite low-yield, high-growth stocks?
Michael Jennings
Dividend Stocks Research
Category: Dividend Stocks To Buy?
