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The board of Caterpillar Inc. (NYSE:CAT) has announced that it will be increasing its dividend on the 20th of August to US$1.11. This will take the dividend yield to an attractive 1.9%, providing a nice boost to shareholder returns.
Check out our latest analysis for Caterpillar
Caterpillar's Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Caterpillar was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to rise by 54.3% over the next year. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.
Caterpillar Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$1.76 in 2011, and the most recent fiscal year payment was US$4.44. This implies that the company grew its distributions at a yearly rate of about 9.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Caterpillar has seen EPS rising for the last five years, at 19% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Caterpillar Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Caterpillar is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Caterpillar has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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