These 2 Big Companies Just Raised Their Dividends

It's always encouraging when a famous stock market name boosts its shareholder payout. Over the past few days, not one, but a pair of publicly traded rock stars have lifted their dividends: machinery giant Caterpillar (NYSE: CAT  ) and logistics powerhouse FedEx (NYSE: FDX  ) .

Of the two, Caterpillar's is the more significant raise in terms of amount. The company declared a $0.70 per share distribution, $0.10 higher than its predecessor. Some of this can be attributed to pure habit: The Big Cat -- a payer of dividends for 20 consecutive years -- has raised its distribution in the middle of every year since 2010.

What it doesn't point out, and probably should, is that those increases in percentage terms are starting to climb higher. The 2013 raise clocked in at 15%, the previous year's registered 13%, while both of the preceding years amounted to 5% apiece.

Half of the calculation of dividend yield, of course, is share price. Since the first of those pair of 5% dividend raises, made back in the good old days of 2010, the company's stock sold for around $69 per share. These days it's changing hands at roughly $107, or about 55% higher. The new dividend is 59% above where it was back then.

So over the years Caterpillar's distribution hasn't moved too far away from the trajectory of its stock on the exchange (bar a fairly wacky, though short-lived, period during last decade's economic crisis).

But what matters more is the company's payout ratio (the percentage of earnings a company pays out as a dividend). Has Caterpillar managed to keep that steady, or is that needle edging into the red?

When mashed into the firm's latest per-share net profit -- which we'll say is $1.61, as that's the adjusted figure without roughly $0.30 in restructuring costs -- that $0.70 yields a payout ratio of 43%. On a historical basis stretching back a decade, that's a little on the high side, but generally nothing to worry about:

CAT Payout Ratio (TTM) Chart

CAT Payout Ratio (TTM) data by YCharts

Besides, at the end of its most recent quarter, the company had over $5 billion in cash on its books. Shelling out that $0.70 per share dividend will cost it something like $437 million per quarter, a comparatively small amount.

Caterpillar's new $0.70 per share distribution will be dispensed on Aug. 20 to holders of record as of July 21. 

As for FedEx, in terms of dividend policy it's more conservative than the Cat. In spite of this, the company will ship $0.20 per share to its stockholders, a nice 33% increase over the $0.15 it used to pay. 

Like its machinery-making colleague, FedEx tends to lift its dividend once every four quarters. Unlike Caterpillar, FedEx has -- well, until now -- been a cautious raiser, consistently adding $0.01 to the payout every year since initiating it in 2002. 

What might be encouraging it to shell out a little more is its most recent quarterly results. The company managed to keep its adjusted earnings steady on a year-over-year basis, no easy task given the awful weather during the quarter that badly affected deliveries. FedEx came through the period in much better shape than some rivals -- UPS saw a 6% slump in adjusted net profit in its weather-beaten Q1.

As for sustainability, FedEx's conservatism has left enough financial room for the comparatively big hike, and it looks like the ceiling is plenty high. The payout ratio is 16%, not far from the previous level of 11%. At the end of its most recent quarter, the firm had just over $3 billion in the bank, which is many times more than enough to cover the roughly $59 million total quarterly dividend payout it'll be dispensing. 

Like Caterpillar, then, FedEx's dividend looks sustainable. The new $0.20 distribution, is  to be paid on July 3 to stockholders of record as of June 19. 

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Eric Volkman

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.

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Related Tickers

9/3/2015 4:01 PM
CAT $74.45 Down -1.65 -2.17%
Caterpillar, Inc. CAPS Rating: ***
FDX $151.21 Up +0.39 +0.26%
FedEx CAPS Rating: ****