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



Should You Trust This Dow Dividend?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Heavy-machinery builder Caterpillar (NYSE: CAT  ) sports a dividend yield of 2.5%. The payout per share was recently boosted by 13%, and the company has more than two decades of consistent dividends in the rearview mirror, not once having reduced its payout per split-adjusted share. Caterpillar is a well-respected business with four stars out of five in our CAPS system, and it's the purest infrastructure play on the Dow Jones Industrial Average (INDEX: ^DJI  ) .

How much bluer can a chip really get? Caterpillar is an income investor's best friend:

CAT Dividend Chart

CAT Dividend data by YCharts. Shaded areas outline economic recessions.

Or is it?

Caterpillar may be happy to share its wealth with investors, but there's less wealth available to share than there used to be. Have a look at this crazy chart and see if it changes your mind about Caterpillar's dividend superiority:

CAT Free Cash Flow TTM Chart

CAT Free Cash Flow TTM data by YCharts.

You can see Caterpillar's free cash flows seesawing wildly, with a drastic plunge in 2012 -- right alongside the drastic payout boost we saw in the previous chart.

As a result, Caterpillar's once-comfortable cash payout ratio has soared from less than 30% to more than 80% in a matter of months.

That's scary if your retirement portfolio was built around Caterpillar's rock-steady payouts. What if the company can't support this generous policy with current cash flows? With large payout ratios like these, you start to wonder whether Caterpillar might need to slash its dividend or dip into cash reserves to fund it sometime soon.

But let me show you another interesting chart before you panic and dive on that red "sell" button:

KO Cash Div. Payout Ratio TTM Chart

KO Cash Div. Payout Ratio TTM data by YCharts.

Fellow Dow members Coke and Pfizer have also reached lofty cash-payout ratios in recent years. But they also reversed course and returned to solid ground again, and both did it by getting their derailed cash flows back on track.

That's why these companies are blue chips and Dow components, after all. Coke and Pfizer know how to take a licking and keep on ticking. Will Caterpillar bounce back the same way?

We've created a special report to help you figure that out.

Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in our brand-new report, which comes with a year of updates. Just click here to access it now.

Fool contributor Anders Bylund has no positions in the stocks mentioned above. Check out Anders' bio and holdings, or follow him on Twitter and Google+. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (4)

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.

Add your comment.

Compare Brokers

Fool Disclosure

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: 2076540, ~/Articles/ArticleHandler.aspx, 10/28/2016 8:30:56 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...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

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

10/27/2016 4:35 PM
^DJI $18169.68 Down -29.65 -0.16%
CAT $83.01 Down -1.12 -1.33%
Caterpillar CAPS Rating: ***
KO $42.12 Down -0.32 -0.75%
Coca-Cola CAPS Rating: ****
PFE $32.48 Up +0.08 +0.25%
Pfizer CAPS Rating: ****