Caterpillar Inc. (CAT) upped its quarterly dividend by 2 cents to 44 cents in light of increased demand for its equipment and intent to boost shareholder value. This translates to a 5% increase from the prior dividend of 42 cents. The increased dividend will be paid on August 20, 2010, to stockholders of record on July 20, 2010. The shareholders will now enjoy a new dividend yield of 3.1%.
Caterpillar’s current dividend hike comes after a hiatus of two years. The last dividend hike of 17% to 42 cents was announced on June 11, 2008. During the economic recession in 2009, Caterpillar restrained from dividend hikes and maintained its dividend rate of 42 cents.
Caterpillar’s dividend increase follows the dividend hike announced by its closest competitor, Deere & Co. (DE) on May 26, 2010. Deere increased its dividend by 7%, or 2 cents to 30 cents. Caterpillar’s current annualized dividend yield of 3.1% surpasses Deere’s annualized dividend yield of 2.1%. Caterpillar’s dividend payout ratio of 83.71% is also higher than Deere’s 48.05%.
Caterpillar continues to focus on strengthening its balance sheet and improving cash flow. The company’s debt-to-capital ratio was a manageable 45.2% as of March 31, 2010, compared with 47.2% as of December 31, 2009. As of March 31, 2010, Caterpillar had $3.5 billion in cash and cash equivalents on its balance sheet.
The company’s performance in the first quarter was also impressive. Caterpillar’s net income per share was 50 cents compared with 39 cents in the year-earlier period, outperforming the Zacks Consensus Estimate of 39 cents.
The demand for Caterpillar’s heavy equipment is on the rise given improving economic conditions, particularly in developing economies. Caterpillar is ramping up production to meet the recent surge in demand. Caterpillar’s earnings are expected to benefit from higher sales volume, absence of employee redundancy costs and favorable material costs. This, backed by its solid financial position, puts the company in a position to reward its shareholders through increased dividends.
The news of the hike comes on the back of the company’s unveiling of its Vision 2020 and plans for 2015 (see here: Caterpillar Updates Vision 2020) and U.S. Federal Reserve Chairman Ben Bernanke’s comments that the U.S economy is expected to grow about 3.5% this year. Consequently, Caterpillar shares shot up 20 cents to $56.81.
Appointment of New Chief Executive Officer
Following a previously announced succession plan, Caterpillar’s board of directors elected Doug Oberhelman as chief executive officer and a member of the board, effective July 1, 2010. Oberhelman succeeds Jim Owens, who will remain chairman of the board until he retires on October 31, 2010. Oberhelman will then replace Owens as Chairman.
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