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Why Caterpillar’s Dividend Yield Is Sloping Downwards

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Revenue and EPS of Caterpillar

Caterpillar (CAT) posted sales and revenue growth of -18% in 2016 compared to -15% in 2015. Construction industries, resource industries, and energy and transportation in North America, Latin America, and EMEA (Europe, Africa, and the Middle East) drove the decline. Only the company’s Asia-Pacific region noted some growth in construction industries offset by the rest in 2016. However, the company has recorded 7% growth in 1H17. Resource industries and energy and transportation in North America, all the segments in Latin America, resource industries in EMEA, and construction industries and resource industries in Asia-Pacific drove this revenue growth. 

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The company saw EPS growth of -103% in 2016 after growth of 7% in 2015. The decline was driven by a very low operating profit. The company noted a decline in its operating costs. Interest costs fell slightly in 2016 after increasing in 2015. The company posted 19% growth in 1H17 EPS driven by the operating profit growth. The company has maintained a good annual free cash flow balance, which has witnessed a declining trend.

Dividend trajectory of Caterpillar

We can see Caterpillar’s downward sloping dividend yield curve despite the increase in dividend per share due to rising prices, which have negated the effect of the increase in dividends. Caterpillar has a dividend yield of 2.5% and YTD price gains of 36.7%. This compares to a dividend yield of 2.3% and YTD price gains of 14.7% from the Dow Jones Industrial Average (DJIA-INDEX) (DIA). The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.4% and YTD price gains of 13.3%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has YTD price gains of 21.4%.

The iShares Select Dividend ETF (DVY) is a dividend ETF with exposure to Caterpillar. The ETF has a dividend yield of 3% and a PE of 20.3x. The SPDR S&P Dividend ETF (SDY) is a dividend ETF with exposure to Caterpillar. It has a dividend yield of 2.4% and a PE of 20x.

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