Dead-Weight Dividend Stocks: Caterpillar (CAT)
Why It’s Dead Weight: Deterioration of mining; Hefty payout ratio
The headwind Caterpillar Inc. (NYSE:CAT) has faced since 2015 is well documented. Not only did a deterioration of the mining and drilling business take a toll on the company’s top and bottom line, the U.S. dollar’s multi-year ascension has made it nearly impossible for Caterpillar’s all-important overseas customers to afford its equipment. It’s barely broken even over the course of the past four reported quarters, versus 2014’s net income of $3.7 billion.
This hasn’t prevented CAT from paying a dividend, even though doing so hasn’t always been easy over the course of the past couple of years. In fact, Caterpillar’s continued increase in its payout even when things were fiscally lean is admirable, even if a bit uncomfortable. Caterpillar is paying 77 cents per share now, versus only 70 cents per share two years ago.
But the budding economic revival and recovering commodity prices will turn the company’s fortune around before time catches up with the company? Maybe. But, not only has the dollar not peeled back to more beneficial levels for the company, it actually ran to new multi-year highs late last year. That means at least part of the company’s headwind has persisted through the end of last year. And the expectations aren’t high to begin with. The pros expect earnings to fall from 74 cents per share to 66 cents for last quarter, with sales expected to fall similarly. The current quarter results will feel that pain as well.
The greenback is largely expected to pull back as 2017 wears on, but there’s not a lot for CAT shareholders to be excited about at least through the next quarterly report.