Portfolio Update: New Addition (CAT; October 2, 2012)

September was a busy month, as the portfolio grew substantially due to six new purchases. We are now only two days into October, and I’m already working on continuing the momentum established last month. I used the last remaining bullets* and made another purchase today.

As I previously mentioned in the last Watchlist, I am monitoring the industrial sector very closely. Today, I used the moderate downturn in the market to initiate a position with Caterpillar (CAT). I added 17 shares at $84.48/share.

CAT has been on my radar for quite some time, and I figured now was a good time to start accumulating shares. CAT and other cyclicals may drop further yet, but I am very comfortable with investing in this quality brand moving forward. The stock price has been moving in a downward trend since CAT slashed revenue and profit forecasts out in 2015. Seems a bit far out, doesn’t it? Such “news” really shouldn’t have an impact in the here and now, but Mr. Market has a tendency of over-reacting, so the least we can do as investors is to cease the opportunities we get.

Shareholders of CAT have been reaping the rewards of a growing dividend for quite some time. Since 2005, CAT has grown its dividend at an annual rate of 12%. If you purchased the stock then, your yield on cost would be about 4.0% today.

Here is reassurance from management that CAT is well equipped to deal with any forthcoming slowdown in the global economy: “Caterpillar is ready to act if we enter a recession,” said Oberhelman in a press release. “We don’t think it’s likely, but if it happens, we are prepared to react and would expect to remain attractively profitable and to maintain our dividend.”

*until next pay period

The following showcases the technical data for CAT, assuming a starting investment date of January 2005:

 

 

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Compounding IncomeFI FighterDividend Growth MachineJC @ PassiveIncomePursuitHenry Recent comment authors
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Henry
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Henry

Great buy FI! CAT is really an amazing company. By 2015 CAT plans to have $80-100 billion in sales.

I was really close to buying CAT today as well. However, I decided to wait a bit longer. I suppose I’m being picky since the market is still high. I’m hoping if the market corrects then CAT will be even cheaper, preferably $80. I bought some CAT shares around $70 back in 2011 when the market corrected. But anything under $85 seems like a deal! Happy investing, cheers!

JC @ PassiveIncomePursuit
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Nice buy of CAT. I’ve been looking at it for a while as well and would like to get in at some point. I think I’ll be waiting for a little closer to $80 as of now because the yield just isn’t quite there for me yet. Although at these prices you’re set up for good total returns because the capital gains will be there.

Dividend Growth Machine
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Nice purchase! Coincidentally, last night I posted a quantitative comparison of CAT vs. CMI on my blog. Even though I favor CMI, I think both stocks are good long-term investments.

Compounding Income
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CAT is looking pretty cheap these days. P/E is under 10! I like that the payout ratio is low leaving a lot of room for it to pay you more money. You have the potential for some nice capital gains with this one on top of it all. While DGM showed CAT does have a lot of debt its not always bad. Using other peoples money can be an advantage if managed wisely!

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