Caterpillar's Dividend Crushed the Dow in 2013! (In a Totally Academic Sense)

Caterpillar's dividend juiced its returns by 155% in 2013 -- but in a way that doesn't help investors at all. Another good reason for investors to use calculators often.

Jan 6, 2014 at 2:00PM

The Dow Jones Industrial Average (DJINDICES:^DJI) had a banner year in 2013. The blue-chip index gained 3,473 points, or 26.5%, to close out the year at 16,567 --  an all-time high. Thirty-three tickers claimed Dow membership at some point in 2013, and all 33 pay regular dividends. Among all these high-quality dividend stocks, where did the dividends make the biggest difference?

The answer may seem simple: AT&T (NYSE:T) once again delivered the juiciest dividend yield on the Dow, followed by Verizon (NYSE:VZ) and Intel (NASDAQ:INTC) in a dead heat.

Reinvesting AT&T's dividends in 2013 boosted your returns from 4.3% to 9.7%, for a 5.4% spread. Verizon and Intel both saw 5% higher returns when accounting for dividend reinvestments, though Verizon only gained 13.6% in straight-up share price returns while Intel mustered 25.9% higher prices in 2013.

But that's not the only way to do this dividend math. I could also point out that AT&T's dividend-powered return was more than twice the plain share price return, for a 126% relative boost. In these terms, Caterpillar (NYSE:CAT) stock crawled so close to the breakeven line that its modest 2.1% dividend improvement represented a 155% boost.

Don't take this stunning return-booster as a massive "buy" sign on Caterpillar. The heavy-equipment maker's dividend-powered 3.4% return might be 155% higher than the plain 1.3% share price gain, but Caterpillar investors are cursing both of these numbers. Yes, it's a massive improvement in relative terms, but the stock still trailed the Dow in a big way no matter how you slice it.

Don't be afraid to double-check the math if something looks too good to be true.

A careless headline might make you think that Caterpillar's dividend made you 155% richer in 2013, when the reality is that the dividend only softened the blow of a very disappointing year by a couple of percentage points. AT&T and Verizon are still the true dividend kings of the Dow, with Intel stepping up from behind, and three of these four stocks still trailed the Dow's dividend-adjusted returns in 2013. Only Intel lost to the Dow in plain share price returns but edged out the index when accounting for dividends.

DIA Total Return Price Chart

DJIA Total Return Price data by YCharts.

Dividends rarely help you beat the market on short time horizons like 12 months, but they do build wealth in the long run. They can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Fool contributor Anders Bylund owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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