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3 Stocks With Better Dividends Than Caterpillar Inc.

By Travis Hoium – Mar 1, 2016 at 6:37PM

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Before buying into the industrial giant -- a bellwether for large parts of the economy -- consider these more stable dividend stocks that will thrive even in tougher periods.

Image source: Wikimedia Commons.

Caterpillar (CAT -0.90%) has an industry-leading machine business and a 4.7% dividend yield, which can look enticing to investors. But operationally, the company is highly cyclical, and right now, it's struggling due to weak demand from mining and energy customers, who may not start boosting orders again for years.

So instead of jumping on Caterpillar for its dividend, consider these three great dividend stocks that may provide even more growth than the big yellow machine manufacturer can. 

If you're looking for more diversity than Caterpillar, look no further than 3M (MMM -2.27%). The company has exposure to nearly every major industry from energy to consumer goods, and it has a dividend that's as rock solid as they come.

In early February, 3M announced a $1.11-per-share dividend for the first quarter of 2016, an 8% increase from what it paid a year ago, and the 99th straight year 3M has paid a dividend.  

The nice thing about a company like 3M is that you don't have to worry about what commodity prices or housing or any other industry-specific metric will do to its bottom line. When one market goes down, another goes up. If energy is doing poorly, that means lower input costs for manufacturing; if people are driving more, it means increased demand for its auto business products. Diversity is key when you're looking at dividend stocks, and that's what 3M has over Caterpillar.

Duke Energy
The decline in energy prices has been bad for oil and gas drillers and producers, but it's actually been a positive in many ways for utilities like Duke Energy (DUK -0.87%). Low natural gas prices mean cheap electricity, which can help drive electricity consumption growth. In Duke Energy's regulated territories, it's that consumption growth that will drive earnings.

In addition, Duke Energy has made an important transition in recent years with its investments in renewable energy. These projects include long-term power purchase agreements with other utilities, which offer very predictable returns. That is helping drive earnings and dividend growth as well.

DUK Net Income (TTM) Chart

DUK Net Income (TTM) data by YCharts.

The utility business is changing as new energy sources compete for consumers' attention, but Duke Energy has positioned itself well with relatively clean power-generating assets, a regulated utility business, and renewable energy assets. That makes for a safe dividend for energy investors today.

Procter & Gamble (NYSE: PG) is a leading maker of consumer staples. Toilet paper, detergent, soap, and razors are just a few of the everyday products the company makes that we won't go without, even in a recession.

The company has run into some challenges lately as the strong dollar took a bite out of its international revenues and low-cost competitors ate some of its market share. But management is refocusing the business on products where P&G holds a brand advantage and can generate stronger returns. Long term, that should pay off because the consumer staples business isn't going anywhere.

Like 3M, P&G also has a very long history of paying a dividend. This will be the 125th straight year the company has paid one, and that payout has increased for 59 straight years. If you want something more stable than large machine sales, P&G might be for you.  

Look beyond the yield
A stock like Caterpillar can be enticing because of its high dividend yield, but long-term it may be better to buy into a more stable business with the ability to grow dividends. That's what 3M, Duke Energy, and P&G have over Caterpillar today. 

Travis Hoium owns shares of 3M and Procter & Gamble. The Motley Fool recommends Procter & Gamble. 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.

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Stocks Mentioned

Caterpillar Stock Quote
$233.58 (-0.90%) $-2.12
Procter & Gamble Stock Quote
Procter & Gamble
$146.71 (-0.01%) $0.01
3M Stock Quote
$126.12 (-2.27%) $-2.92
Duke Energy Stock Quote
Duke Energy
$98.75 (-0.87%) $0.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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