Investing in the stock market is one of the best ways to build wealth, and one blue-chip stock that has delivered for investors for decades is Caterpillar (CAT 1.59%). Caterpillar has established itself as a stalwart in the heavy machinery industry. The company has grown its dividend payout for 30 consecutive years -- a testament to its business and strong balance sheet.
Although the business is cyclical and subject to fluctuations in the U.S. economy, it exemplifies why you should buy quality companies and hold them for the long haul. In fact, investors who bought Caterpillar 25 years ago have experienced returns that have far exceeded the S&P 500. Read on to see how much a $2,500 investment 25 years ago would be worth today.
A top provider of heavy machinery and equipment across industries
Caterpillar designs and manufactures heavy machinery and equipment for construction, mining, energy, and transportation. The company is the top construction equipment manufacturer, developing this machinery for nearly a century. Last year the industrial giant generated $59 billion in sales across its three primary segments:
- Construction industries include machinery used in infrastructure, forestry, and building construction.
- Resource industries include machinery and heavy equipment that extract and haul precious resources like copper, iron ore, coal, gold, and other minerals.
- Energy and transportation include equipment to support oil and gas, power generation, and zero-emissions power sources.
The segments provide Caterpillar with a nice balance, with construction producing 43% of total sales, energy and transportation at 40%, and resource industries at 21%.
Caterpillar is a robust investment because it is a crucial machinery supplier across multiple segments supporting infrastructure growth and mining essential resources across the supply chain. Caterpillar's revenue per share and diluted earnings per share have grown at a solid, not staggering, pace of 6% and 7% compounded annually over the past 25 years. This has been good enough to support its dividend, which has grown annually for 30 years.
If you invested $2,500 in Caterpillar 25 years ago, you'd have this much today
An investment in Caterpillar 25 years ago would've delivered solid returns for you. Since 1998, Caterpillar's stock has gained over 804%. If you reinvest your dividends back into the stock, your total return would be over 1,630%. These stellar returns would have turned your $2,500 investment into over $43,140 today. In comparison, a $2,500 investment in the SPDR S&P 500 ETF would be worth $15,370 today.
CAT Total Return Level data by YCharts.
Can Caterpillar keep winning?
Caterpillar's business is cyclical, meaning a slowdown in the economy could result in a downturn in its earnings. As investors, it's essential to consider the risk of investing in cyclical stocks. However, over a long enough time horizon, Caterpillar has been a stellar performer -- showing how valuable it is to buy and hold quality companies over the long haul.
Its management team has done a solid job of improving its profit margins and cash flows during up and down cycles -- which bodes well for its continuing to grow its dividend. It's also well-positioned to continue delivering results. After decades of underinvestment in infrastructure, the U.S. passed the Infrastructure and Jobs Act and Inflation Reduction Act in recent years, which invests $1.25 trillion in transportation, energy, water resources, and broadband over the next 10 years.
Much of these funds will go into rebuilding roads and constructing new sustainable energy facilities through spending programs and federal tax credits. Caterpillar invests heavily in ensuring its new products meet the latest regulatory requirements around emissions standards, and its heavy machinery and equipment will be in strong demand as these funds get disbursed over the next decade.
Image source: Getty Images.
An excellent blue chip dividend stock to buy today
Caterpillar's products are vital to developed and developing economies building and upgrading their infrastructure, and it has delivered for its investors for decades now. The blue chip stock provides a dividend yield of 2%, making it a solid income stock that you can add today as part of your diversified portfolio.
