Caterpillar (NYSE:CAT) Is Paying Out A Larger Dividend Than Last Year

The board of Caterpillar Inc. (NYSE:CAT) has announced that it will be paying its dividend of $1.30 on the 18th of August, an increased payment from last year's comparable dividend. This will take the annual payment to 2.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Caterpillar

Caterpillar's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Caterpillar's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 39.2% over the next year. If the dividend continues on this path, the payout ratio could be 27% 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. Since 2013, the annual payment back then was $2.08, compared to the most recent full-year payment of $5.20. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Caterpillar has been growing its earnings per share at 30% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Caterpillar's Dividend

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. For instance, we've picked out 1 warning sign for Caterpillar that investors should take into consideration. Is Caterpillar not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.