In this part of the series, we’ll look at Caterpillar (CAT) and Walmart (WMT). Caterpillar’s (CAT) growth of 7.0% in total sales and revenues for the first half of 2017 mainly came from the machinery, energy, and transportation segments. The 19.0% rise in EPS (earnings per share) for the same period was driven by revenue and operating income, partially offset by a higher provision for income tax. The company raised its sales and earnings guidance for 2017 due to increased demand for construction and efficient cost control.
Fiscal 2016 sales and revenues fell 18.0%, driven by sales in the machinery, energy, and transportation segment. EPS for the same period ended in the negative, unlike in 2015, driven by revenue and operating income growth and a lower number of shares outstanding. Caterpillar paid off 0.70% of its earnings as dividends in 2015. It paid off 2.4% and 0.57% of its earnings as dividends in 1Q17 and 2Q17, respectively.
Caterpillar has consistently raised its dividend payments since June 2006. However, the dividend rate remained unchanged between April 2007 and April 2015. Caterpillar has always generated enough free cash flow to honor its dividend commitments. However, its free cash flow has been falling over the years. The company’s debt-to-equity ratio has seen an increasing trend. Plus, Caterpillar has managed to grow its cash and short-term investment position over the years.
Walmart’s (WMT) 1Q18 revenue growth of 1.4% was driven by Walmart’s US comp (comparable) sales and e-commerce growth. EPS rose 2.0% driven by revenue and lower shares outstanding.
The company’s sales growth of 0.60% in fiscal 2017 was mainly driven by Walmart US, followed by Sam’s Club. Membership and other income rose 30.0% in fiscal 2017. EPS in fiscal 2017 fell 4.0% due to lower operating income. Revenue for fiscal 2016 fell 0.70% driven by Walmart International and Sam’s Club, partially offset by 3.0% growth in membership and other income. EPS for fiscal 2016 fell 9.5% driven by revenue and operating income. Walmart paid off 0.43% of its earnings as dividends in 2016 compared to 0.39% in 2015. It also paid off 0.46% and 0.51% of its earnings as dividends in 2017 and 1Q18, respectively.
Walmart has had consistent growth in its dividend payments. It has maintained a good free cash flow position. It has also maintained a holistic mixture of debt and equity in its capital structure and a good cash and short-term investment position.
The SPDR S&P Dividend ETF (SDY) offers a dividend yield of 2.5% at a PE (price-to-earnings) ratio of 19.6x. It has the highest exposure in financials followed by industrials. The iShares Core Dividend Growth (DGRO) offers a dividend yield of 2.1% at a PE ratio of 19.8x. It has the highest exposure to the technology sector, followed by the financials and healthcare sectors.