Infrastructure spending has been a hot topic both on and off the Street for some time now, and one company in particular — Caterpillar Inc. (NYSE:CAT) — is set to benefit from any impending boom. CAT stock is both an income play and a solid long-term holding, even with management’s recent cautions.
Caterpillar has been around for more than 100 years. If you’ve ever passed a construction site, a working farm or even checked out the locomotive on the local train track, you’ve probably seen the name.
Today, Caterpillar is the leading manufacturer of construction and mining equipment in the world.
By total assets, the company consistently ranks in the top 50 of the Fortune 500, which, among other advantages, speaks to CAT stock’s viability as a long-term investment for those after both safety and growth.
Caterpillar’s Recent News
Caterpillar stock has a generous dividend policy, which is why I also like it as an income investment. Going back to 1914, management has paid out a shareholder dividend every single year, including 21 consecutive years in which the annual payout increased. CAT yields 3.3% at current prices. And no matter what happens to share prices or the market in the near-term, you can’t manipulate that payout.
CAT stock has performed well throughout 2016, and in the most recent quarterly report, Caterpillar beat on earnings but missed on revenue and lowered full-year guidance. The company earned 85 cents per share, ahead of the consensus estimate of 76 cents. Revenue of $9.16 billion was short of the Street’s expectation of $9.86 billion.
Management also forecast earnings of $3.25 a share, down from previous guidance of $3.55 a share, on sales of $39 billion, also down from prior estimates of $40 billion to $40.5 billion. This didn’t surprise me, as the company hasn’t increased annual sales since 2012.
CEO Doug Oberhelman said most of the end markets for the company “remain challenged” and that they also “remain cautious” looking ahead to 2017. And following up on the caution, CAT stock actually was halted recently as management said consensus expectations for next year were “too optimistic.”
CAT Stock: A Look Ahead
At the same time, management also said they were encouraged by things like potential infrastructure spending in the U.S., tax changes, OPEC’s production cap and higher commodity prices.
In the end, the stock traded higher on the day, which is a sign of confidence for the future.
Even before the election, we were preparing for an infrastructure spending boom no matter who won the race. And things are continuing to fall into place here as President-Elect Donald Trump recently named Elaine Chao as his secretary of transportation. She is a part of the establishment, and that’s a good thing when it comes to getting the Trump infrastructure plan off to a blazing start.
Caterpillar is in prime position to benefit from that spending.
I also like that it’s a resilient stock. It has broken through key resistance points and has support north of $80, which is a level it has bounced off a few times since the summer. Then there’s the dividend, which simply adds the cherry on top of a longer-term cake.
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