This morning I pulled the trigger and purchased 23 shares of Caterpillar (CAT) for $82.75 per share. Based on the recently announced quarterly payout of $0.52 per share my YOC for the position is 2.50%. The CAT shares will provide an extra $47.84 in annual dividends before any further increases or dividend reinvestment. I'll be receiving my first payout from Caterpillar in November with a $11.96 payout. I was able to purchase the shares at a 16% discount to my calculated fair value. You can check out my analysis on Caterpillar here.
While I do focus mainly on DG stocks, CAT is more of a capital gains play for the time being that happens to pay a dividend while you wait. I believe it's undervalued by quite a bit and when the global economy is able to right itself CAT will be there to profit on the turnaround. And the plus is that CAT is still a DG stock. I would have preferred that the yield be higher that the 2.50% but historically CAT has not sold for an eyepopping yield. CAT is still a solid DG stock with 19 consecutive years of dividend increases on the books and a 5 and 10 year DG rate just over 10%. Caterpillar's cyclical nature lends to periods of high dividend growth rates followed by low dividend growth rates averaging out to solid growth rates long term. I believe that with CAT's low payout ratio and history of dividend increases there will be plenty more to come in the future.