Any One Have Any Thoughts on CAT

[Golden sunsets]

I'm wondering if any of the smart folks here have any thoughts on Caterpillar. Particularly those who like dividends. CAT has taken a dive based I believe on China and their involvement in mining and drilling. The divy though is getting close to 5% which Is attractive. It's a dividend aristocrat and I believe they have consistently raised their dividend for over 20 years despite multiple recessions. I like the idea of buying a 5% dividend that is only going to increase with the added expectation of appreciation over time. We are for the most part index investors but dabble in some individual issues in our taxable account that are buy and hold with dividends. Thoughts?

 

[papadad111]

If your time Horizon is 5 years then I think it's a good play here. It's really a commodities play. You need to clear this latest weakness, An economic down cycle or recession around mid 2017 and then CAT comes to life. I would not go all in here but purchase half and then DCA into the rest over the next 8 quarters.. Inflation not in your favor now ...

After commodities have a final roll over, and a recession, commodities will begin to tick upward and with that the shares of CAT. I don't know if the dividend will stay where it is, some of the economics in the industry's of mining and oil and copper are unprecedented.

DW owns some CAT - hard to see it fall from the 120s!!!

 

[utrecht]

CAT sells so much of the equipment overseas that I dont see their stock going anywhere but down for the foreseeable future. If I was going to buy the stock right now for the dividend (which I wouldnt), I would immediately sell covered calls to increase my income.

 

[ERD50]

... I like the idea of buying a 5% dividend that is only going to increase .... Thoughts?

Yes. My thought is: couldn't the div decrease? Or stay the same?

I have no opinion on CAT as an investment at this time, but when I start hearing 'sure thing' talk, it raises red flags for me.

Good luck! - ERD50

 

[Bamaman]

As previously mentioned, CAT is a truly international company and with marginal economies overseas large construction projects are likely to be curtailed.
CAT has a huge business is in mining, and don't look for North American coal production to be good in the future--lessening CAT sales of excavators, crawler dozers, front end loaders and off road dump trucks.
The third big area for CAT is in road building equipment and pavers--much sales of which is driven by governmental spending. I see no indication that our infrastructure is going to see any substantial rebuilding in the near future.
Caterpillar is obviously going into "emergency mode" in the laying off of thousands of employees and shuttling factories. They can always scale back up somewhat when things pick back up--domestically and internationally.

 

[Golden sunsets]

Thanks all. I also just realized that they did reduce their dividend in 2005, so it is not a true dividend aristocrat according to my definition. I'll stick with index funds when rebalancing rather than taking a chance on an individual issue.

 

[ownyourfuture]

CAT sells so much of the equipment overseas that I dont see their stock going anywhere but down for the foreseeable future. If I was going to buy the stock right now for the dividend (which I wouldnt), I would immediately sell covered calls to increase my income.

Taking into account the horrific descent of the stock over the past year, wouldn't the option premiums be minuscule at best ?

 

[GrayHare]

If you like the Dogs of the Dow approach, CAT can fit for you, despite the naming irony. Some of my best long-term stock buys have been Dow Dogs.

 

[utrecht]

Taking into account the horrific descent of the stock over the past year, wouldn't the option premiums be minuscule at best ?

That's not how it works.

CAT is at 64.75. If he bought 100 shares of the stock and sold Nov 65 calls he would collect $2.79 ($279) which is 4.3% of the stock price. I wouldn't do it, but if he wants to buy the stock, he would collect another 4.3% in 6 weeks.

For comparison:

SBUX which has not had any kind of slide at all and in fact has done amazingly well.

SBUX is at 57.41. The Nov 57.5 calls sell for 2.43. Thats 4.2% of the stock price.

A stock tanking does not mean the option prices will be super low.

 

[frayne]

Is anybody loading up on POT these days ? Looks like a pretty good price point to buy.

 

[ERD50]

Is anybody loading up on POT these days ? Looks like a pretty good price point to buy.

I wonder what the people who are selling it are thinking?

-ERD50

 

[Rick_Head]

Is anybody loading up on POT these days ? Looks like a pretty good price point to buy.

I'm watching it. 7.5% is a pretty nice divvy and for Canucks the tax treatment makes it about equal to a 10% bond. If further discussion is wanted, there is a sub-forum for stocks we could go to.

Edit: OOPPs, we are in that sub-forum. We could try a different thread

 

[Rick_Head]

Interesting, I tried to respond to a POT thread and was told it's too old. SHEESH

 

[ERD50]

Interesting, I tried to respond to a POT thread and was told it's too old. SHEESH

Didn't you get a warning and a box to check to acknowledge that it was old, but you wanted to post anyway?

I get those, but someone said maybe you need X posts/time to get that? I would think your 336 would be plenty to be past a 'newbie' for anything like that.

-ERD50

 

[Rickt]

CAT is not going anywhere for the foreseeable future. They have slashed already over 20k jobs and are ready to cut 10K more and shutting down units. Obviously they don't see things turning around soon. I wouldn't buy CAT at this time.

 

[kikechico]

Would you guys sell CAT right now? My father's has about 75k in shares that he has own for about 6 years; he will be 59 in two years.

 

[ERD50]

Would you guys sell CAT right now? My father's has about 75k in shares that he has own for about 6 years; he will be 59 in two years.

Depends who you ask. The average volume on CAT is 7,444,750 shares.

The people on one side of that trade thought it was time to sell, the people on the other side thought it was time to buy. Which opinion is the one to listen to?

-ERD50

 

[NW-Bound]

CAT dropped from 110 in 2014 down to 65 now. Trailing P/E is 11, compared to 18 for the broad market. Future earnings will drop, and that will bring the P/E up. So, one can say that this stock is "pre-disastered".

I would not load up on it, as it may take quite a few years for the market of heavy machinery to pick up. But if I have lots of it, may sell some to diversify into other stocks that are also beaten up worse than the market.

 

[Cortina]

Thanks all. I also just realized that they did reduce their dividend in 2005, so it is not a true dividend aristocrat according to my definition. I'll stick with index funds when rebalancing rather than taking a chance on an individual issue.

This is not correct ! It appears as if the div was cut in 2005 , to 25c from 41c .... however , taking into account that there was a 2 for 1 stock split, it actually rose from 20.5c to 25c.

I have bought and sold CAT over many years , and the worst that has ever happened is that they kept the div constant for 2 years. I have bought recently at around the $70 mark , and am happy with a 4.4% gross return .... and am as sure as one can be that 4 or 5 yrs down the road I will see a good return (will sell for a lot more than $70)

 

[papadad111]

Still sliding downward ... CAT likely to see upper 50's before it sees 70 again.

 

[Running_Man]

My thoughts on CAT-
I typically would not invest in Caterpillar because it is a cyclical company and therefore the earnings are too unpredictable and subject to large swings for the type of dividend investing I prefer. But I reviewed CAT from a 15 year perspective and it seems to me:

1) Earnings during the early 2000's saw a range of 1-2 dollars with about .70 being paid out, realizing about 50% payout ratio. During the next 4 years earnings exploded with the China boom and earnings grew to over $5.00 per share. Much of that income was used to double the dividend to over $.50 by 2008 but even more was used in capital spending as CAT embarked on investing in their business with capital spending increasing from $1.50 per share early in the 2000's to over $6.00 per share by 2008 investing even more than they made, using debt which was becoming cheaper by the year to finance the investment spurt. During the 2008 - early 2009 debacle CAT stock fell by 75%.

2) In 2010 began the FED's ZIRP policy and the mining industry was the big utilizer of ZIRP and CAT a major beneficiary. Earnings peaked at $9.00 per share and CAT continued to invest at $6.00-$7.00 per share in capital projects.

3) A good indicator of the overspending on capital is the steady decline over the past 10 years on return of total capital from the 14-16% range in 2005-2006 to the 8.5% for 2015. Recently CAT has cut their capital spending to about $3.15 per share, with depreciation of $5.10 per share they have $1.95 in favorable cash flow on investments.

4) Though dividends are now almost 60 percent of earnings they are very affordable because of the decline right now in capital investments and why CAT could afford to increase the dividend by 10 percent this year in a declining earnings environment. Make no mistake, CAT is selling products to an overbuilt industry and could have reduced sales for years as a result of ZIRP policy, however reduced capital spending demands means the dividend for the foreseeable future is secure.

5) At the present time I would view CAT as a low growth potential bond substitute stock with cyclical risk offsetting the inflation protection dividends provide. Debt has been added and utilized by CAT but manageable and not increased at same rate as some other companies as they had the benefit of earnings exploding during the mining ZIRP boom as they are early winner in the commodity chain. I would not invest in CAT as they do not meet my minimum qualifications for earnings predictability but if I had them as an investable company I would be targeting a 5% dividend yield or about 60 dollars per share as being the price to target and watch for the price to be hit.

 

[rayinpenn]

Forget the price
http://finance.yahoo.com/q/hp?s=CAT&a=00&b=2&c=1962&d=10&e=13&f=2015&g=v

Those dividends look sweet...



Sent from my iPad using Early Retirement Forum.

 

[Cortina]

Still sliding downward ... CAT likely to see upper 50's before it sees 70 again.

... or maybe not ??

 

[papadad111]

I stand corrected. Nice pop. Dividend hard to beat. Probably a classic buffet value play in the mid 60s.

 

[Running_Man]

As frequently happens with stocks in an industry in distress that is being considered for the dividend it has fallen further and is now below the 60 I would have targeted, would this have been the type of dividend stock I would buy, which I don't because of earnings being too volatile and unpredictable over the long term. However for the near term (next few years) they should easily be able to fund the present dividend.