What happened

Shares of Caterpillar (NYSE:CAT) soared 23.3% in 2020, according to data provided by S&P Global Market Intelligence. After tanking in March alongside the broader market, Caterpillar shares steadily climbed through the rest of the year, even attaining all-time highs, despite the COVID-19 pandemic hitting the business from all sides. Four broad factors fueled the rally -- earnings, dividend, presidential election, and coronavirus vaccine.

So what

As early as April, Caterpillar management took stock of the COVID-19 situation and trimmed base salary increases and discretionary spending, among other things, to curb costs. Management's proactive steps sat well with investors at a time when Caterpillar's sales were already feeling the pressure.

Unlike other industrial companies that reveal their operational standing quarterly through earnings reports, Caterpillar releases monthly global retail machinery sales growth numbers for the previous three-month rolling period. With the coronavirus lockdowns halting manufacturing activity across all of Caterpillar's key markets (namely mining, construction, and energy sectors), the company's retail sales sank month after month.

It was only in the latter half of 2020 that things started to look up for Caterpillar. The company's third-quarter numbers, although somber, beat analysts' estimates, though Caterpillar did see a sequential improvement in volumes and operating margin.

A surprised man staring at his laptop screen.

Image source: Getty Images.

More importantly, during Caterpillar's Q3 earnings call, management reiterated how its dividend "remains a high priority through all economic cycles" and that it expects to increase the dividend in 2021. That put to rest all concerns about a potential dividend cut and confirmed that Caterpillar is keen to maintain its Dividend Aristocrat status -- the company has increased dividends every year for the last 27 consecutive years.

Caterpillar also agreed to acquire the oil and gas division from The Weir Group in October in an all-cash deal worth $405 million even as oil prices collapsed and the energy sector struggled. The development reinforced our perception of Caterpillar management's agility and ability to grab opportunities amid challenges.

Meanwhile, the presidential election in the U.S. proved to be a big catalyst for Caterpillar shares. As Joe Biden looked set to assume the presidency, hopes of a long-overdue infrastructure plan finally seeing the light of the day peaked. As the world's largest construction-equipment manufacturer, Caterpillar is seen to be a major beneficiary of any uptick in the infrastructure sector.

To top it all off, encouraging developments around a coronavirus vaccine in late 2020 ensured continued momentum in Caterpillar shares in anticipation of an economic recovery and better days ahead for the cyclical stock.

Now what

Caterpillar shares have already gained 8.4% so far this year, as of this writing, as hopes of an infrastructure stimulus bill have gained further traction. Given how 2021 has started, Caterpillar is a must-add stock to your watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.