Are You Looking for a High-Growth Dividend Stock? Caterpillar (CAT) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Caterpillar in Focus

Caterpillar (CAT) is headquartered in Deerfield, and is in the Industrial Products sector. The stock has seen a price change of 8.02% since the start of the year. Currently paying a dividend of $1.11 per share, the company has a dividend yield of 2.26%. In comparison, the Manufacturing - Construction and Mining industry's yield is 0.93%, while the S&P 500's yield is 1.41%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.44 is up 7.8% from last year. Caterpillar has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 8.63%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Caterpillar's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.

CAT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $10.08 per share, with earnings expected to increase 53.66% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CAT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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