Bought: Caterpillar (CAT)


I bought a new position in Caterpillar (CAT) at $135/share. At this level, the stock is trading near the middle of its 52 week range of $112-$164. 

CAT is the best of breed blue chip in the industrial-machinery sector and it is one of the most well known brands in the world. CAT is a new dividend aristocrat meaning that they have paid and raised their dividend for over 20 consecutive years. Currently, CAT pays investors an annual dividend of $3.44 for a yield of 2.5%.  

I find the risk/reward on this stock compelling. CAT has recovered nicely since the China Trade Tariff nonsense starting filling the financial news and I think there is a lot more room for it to run. When the US and China come to trade agreement terms, I think CAT stock can get back to its 52 week highs. In my opinion, this macro uncertainty is the only thing holding back the stock.

CAT is a riskier stock than many other dividend aristocrats. With a beta of 1.5, it is in theory, 50% more volatile in price movement than the average stock. I'm willing to accept this higher risk due to reward potential of holding this stock. Remember, the higher the risk in investing, the higher reward and vice-versa.

Numbers that I am impressed with are CAT's high earning per share (EPS) of 10.06 while boasting a small price to earnings ratio (P/E) of just 13.7X.  This tells me that the stock is banging out strong earnings and while at the same time it is fairly priced.

I also like the dividend. As you know from my other stock purchases, I'm a big fan of dividend aristocrats stocks. And as a dividend growth stock and at a 2.5% yield, I can hold onto this income generator whether it goes up or down.

I'll sit on this position while the US-China Trade War sizzles down and look forward to my dividend income payments.  

ABOUT CAT

Caterpillar Inc. is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The Company operates through segments, including Construction Industries, which is engaged in supporting customers using machinery in infrastructure, forestry and building construction; Resource Industries, which is engaged in supporting customers using machinery in mining, quarry, waste and material handling applications; Energy & Transportation, which supports customers in oil and gas, power generation, marine, rail and industrial applications, including Cat machines; Financial Products segment, which provides financing and related services, and All Other operating segments, which includes activities, such as product management and development, and manufacturing of filters and fluids, undercarriage, tires and rims, ground engaging tools, fluid transfer products, and sealing and connecting components for Cat products.

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Disclosure: I am long CAT

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I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My opinions and strategies of the are not intended to ever be a recommendation to buy or sell a security. The strategies I use have worked for me and it is 100% for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.


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