Everyone Can Capitalize on Caterpillar
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Like Richard Burton and Elizabeth Taylor, Caterpillar's (NYSE: CAT) relationship with the financial markets is volatile yet long term and forgiving in nature. A member of the Dow Jones Industrial Average, Caterpillar has a price-to-earnings ratio, price-to-earnings growth ratio, dividend payout ratio and return-on-equity ratio that are all very solid; and, as a result, offers much to income, growth and value investors. Yet, Caterpillar as a beta of 1.84, meaning the stock swings almost twice as much as that of the stock exchange as a whole.
While demanding on the blood pressure level, that allows for patient investors with a long term focus to accumulate shares of Caterpillar when the growth and value financials are enticingly low and the dividend income is alluringly high. Over the last 52 weeks of market activity, the share price of Caterpillar has ranged between $66.59 and $116.46. As a result, the dividend income provided by Caterpillar has vacillated from around 3% to under 2%. At present, it is around 2.4%.
Caterpillar is the world's largest heavy equipment manufacturer. It has operations spanning the globe, particularly in emerging markets. Caterpillar has targeted China for expansion, acquiring businesses in the country. As a result of its global treadprint, Caterpillar is bought and sold in accordance with the economic news emanating from around the world. That is particularly true with any reports from China of slowing growth.
In an interview in February of this year, Doug Oberhelmn, the Chief Executive Office of Caterpillar, stated, "In 2012 we're going to have another year of record sales and profit. At the moment, (economic growth in) Asia is dropping a little, Europe is in recession and the United States is recovering quite a bit ... We're seeing a little more activity in China this year." Oberhelmn projected that 2012 revenues for The Big Cat would rise by 10-20%, chiefly from sales in emerging market nations, the key to growth for the Illinois-based company.
That has been demonstrated quite clearly by the share history of Caterpillar over the span of The Great Recession. While other Dow Jones members such as Boeing (NYSE: BA) and Bank of America (NYSE: BAC) are trading far below their pre-2008 highs, Caterpillar, now in the low $80s, is trading above the levels in 2007. When Caterpillar was at over $115 in late February, it was trading at its ten-year high, reached back in April 2011.
Over the The Great Recession, emerging market countries continued to grow. As a result, the demand for the tractors and engines of Caterpillar remained strong. This raised the share price from around $60 in January 2007 to a high of $116.46 in February 2012.
Those buying based on income, growth and value investing should utilize the volatility of Caterpillar to build a long term position. For speculators and traders, the high share price of Caterpillar makes options a more viable financial vehicle. Whatever the investing objective and trading style, the dividend yield from Caterpillar provides a steady income stream.
At around 2.4%, the dividend income for Caterpillar is around the average for a stock on the Standard & Poor's 500 Index. However, it places Caterpillar in the bottom one third as a dividend paying stock on theDow Jones Industrial Average. With its low dividend payout ratio, there is ample cash flow for increasing the dividend of Caterpillar.
With growth in the United States anemic and Europe in a recession, emerging market nations such as China and India offer higher returns for the future. In its market position, Caterpillar is situated well to prosper from greater growth around the world. The performance of its stock over course of The Recession is testament.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article.