We recently published a list of 12 Best Industrial Dividend Stocks to Invest in Now. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against other best industrial dividend stocks to invest in now.
Industrial stocks play a crucial role in economic growth, encompassing a wide range of businesses, from manufacturing to transportation. This sector often performs well during periods of economic expansion and stands to gain from higher government investment in infrastructure projects. Although the sector is diverse, companies within it exhibit common characteristics and are positioned to benefit from several overarching trends. These factors contribute to the view that industrials play a significant role in the equity portion of a well-diversified portfolio.
In recent years, the industrial economy has generally experienced improving demand trends, though certain areas, such as manufacturing automation, have shown signs of weakening. A report by Edward Jones suggested that while the recovery is expected to continue, several near-term uncertainties could impact the sector’s growth. These include a potential slowdown in economic expansion, ongoing geopolitical challenges, and declining business and consumer confidence.
Additionally, the growing risk of a global trade war between the United States and key trading partners has introduced further uncertainty for the industrial sector. While the administration has announced tariffs on materials such as steel and aluminum, the full impact of these measures remains unclear. Further tariff actions are anticipated, with a likely focus on China and the European Union. In response, these regions are expected to retaliate through tariffs or other policy measures.
In 2024, the industrial sector delivered solid returns overall, though it slightly trailed the broader market in what was a strong year for stocks. A report by Fidelity Investments noted that industrials started the year on a strong footing, generally keeping pace with the broader market through April. However, the sector underperformed in May and June before rebounding in July, emerging as one of the market’s stronger segments. It largely maintained those relative gains through mid-December. This uneven performance reflected a balance between optimism surrounding a potential soft landing for the US economy and a surge in major construction projects, contrasted with concerns over weak manufacturing indicators and historically high stock valuations.
The Fidelity report also highlighted several key themes that could present investment opportunities in the coming year. One of the primary themes is the resurgence of manufacturing within the United States. Various factors are driving an unprecedented wave of reinvestment in domestic infrastructure, efforts to onshore supply chains to mitigate geopolitical risks, and increased investments in electrification and artificial intelligence development.
The cyclical nature of industrial stocks has contributed to strong performance over time. Over the past three years, the market’s Industrial Index has slightly outpaced the broader market, driven by solid growth across several key industries, including Aerospace & Defense, Building Products, Machinery, and Electrical Equipment. This year, as stocks have been in negative territory for a while now, the industrial sector has recorded a 0.74% decline, while the broader market has fallen by nearly 3%.
Our Methodology
For this article, we first scanned Insider Monkey’s database of over 1,000 hedge funds, as of the fourth quarter of 2024 and selected industrial companies across various segments within the industry, including manufacturing, construction, aerospace and defense, machinery and equipment, transportation and logistics, as well as utilities. From this pool of companies, we identified 12 dividend companies and ranked them in ascending order of the number of hedge funds having stakes in them at the end of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
IS Caterpillar Inc. (CAT) The Best Industrial Dividend Stock to Invest in Now?
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Caterpillar Inc. (NYSE:CAT) ranks fifth on our list of the best industrial stocks that pay dividends. The American manufacturing company specializes in construction, mining, and other engineering equipment. In the fourth quarter of 2024, the company reported $16.2 billion in revenue, marking a 5% decline from the previous year. The drop was largely attributed to an $859 million decrease in sales volume, driven by shifts in dealer inventories and weaker equipment sales to end users. Dealer inventory levels fell by $1.3 billion during the quarter, a steeper reduction compared to the $900 million decline recorded in the same period of 2023. Despite the revenue decline, profit per share rose to $5.78, up from $5.28 a year earlier.
Caterpillar Inc. (NYSE:CAT) remained financially strong throughout 2024, generating $12.0 billion in operating cash flow and ending the fourth quarter with $6.9 billion in cash. Over the year, the company returned capital to shareholders through $7.7 billion in share repurchases and $2.6 billion in dividend payments. Its robust cash flow has supported 30 consecutive years of dividend increases. Currently, it pays a quarterly dividend of $1.41 per share for a dividend yield of 1.65%, as of March 17.
The number of hedge funds tracked by Insider Monkey owning stakes in Caterpillar Inc. (NYSE:CAT) grew to 62 in Q4 2024, from 50 in the previous quarter. The consolidated value of these stakes is more than $6.8 billion. With over 9 million shares, Fisher Asset Management was the company’s leading stakeholder in Q4.
Overall, CAT ranks 5th on our list of best industrial dividend stocks to invest in now. While we acknowledge the potential of CAT as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than CAT but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
