Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Does Caterpillar or Deere Build the Better Dividend Paying Machine?

Caterpillar Inc.  (NYSE: CAT  ) and Deere & Company  (NYSE: DE  ) both have a lot to offer income investors. Caterpillar currently has a dividend yield of 2.2% and Deere pays 2.4%. These are two world-class companies with products in demand across the globe, but which company is a better dividend machine for income investors today?

Dividend Coverage

Dividend safety matters. This is a cyclical industry, and there is no sense in banking on a dividend yield if the company could have a hard time paying it down the road. Dividend coverage is a useful measure to show the margin of safety between what a company earns and how much it pays out to investors. 

DE Dividend Cover (Annual) Chart 

Both Caterpillar and Deere have ample dividend coverage, and their dividend payout streams look safe. That said, Deere gets the advantage at this point with its earnings being able to cover dividends 4.5 times over.

Return on Equity

Turning to quality metrics to get an understanding of managerial effectiveness, the picture is more mixed. Both companies generate very high return on equity. But as you would expect due to the capital-intensive industry they operate in, both have higher debt levels.

DE Return on Equity (TTM) Chart 

Deere is able to generate almost twice as high of an ROE, but to do so it requires almost twice as much debt leverage. Since that debt can later on come back to bite companies in during downturns, this round goes to Caterpillar. By operating with less debt on its balance sheet, Caterpillar is in a better position to weather the market cyclicality that is inherent to this industry.

Repurchases and Dividend Growth

Both Caterpillar and Deere are shareholder friendly, the companies excel at R&D -- no not research and development -- repurchasing shares and raising dividends. Both actions directly benefit Caterpillar and Deere shareholders by boosting the stock price.

DE Dividend Chart 

Both companies have excellent dividend growth track records. Caterpillar has raised its dividend twenty consecutive years. Deere's dividend has grown for ten straight years. The financial crisis could not stop these companies from rewarding their shareholders with dividend growth.  Since 2004, Caterpillar has increased its dividend by 197% from $0.78 to $2.32, and Deere by 284% from $0.53 to $2.04. In the same time period, Caterpillar reduced its shares outstanding by 8%. Deere was even more aggressive by reducing its share count by 25%.


At this point, both companies are somewhat interesting candidates especially given the overall dearth of bargain stocks. But as in everything else, price matters. Deere has the edge in dividend safety and share buybacks. Caterpillar has the advantage with its balance sheet. But which stock is cheaper?

DE PE Ratio (TTM) Chart 

At today's prices Deere clocks in at around half the price (on a P/E basis) of Caterpillar. Aside from that, while Caterpillar sells for a relatively rich valuation based on its history, Deere is selling for near its 10-year low range on valuation. With many of the metrics very close to each other, this one is a no brainer. The two companies have dividend yield, dividend growth, and dividend safety metrics that are each within shouting distance of each other, but Deere appears much cheaper at the moment, giving the stock more room to run.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3040837, ~/Articles/ArticleHandler.aspx, 9/1/2015 6:34:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Gunnar Peterson

Safety, dividends, & growth in that order. Follow on Twitter @totalreturninv

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:00 PM
CAT $76.44 Up +0.49 +0.65%
Caterpillar, Inc. CAPS Rating: ***
DE $81.78 Down -0.69 -0.84%
Deere & Company CAPS Rating: ****