Caterpillar (CAT) Boosts Share Buyback Plan, Raises Dividend

Core Viewpoint - Caterpillar has approved an 8% increase in its quarterly dividend, raising it to $1.41 per share, and has added $20 billion to its share repurchase authorization, reflecting strong financial health and commitment to returning value to shareholders [1][2]. Financial Performance - Caterpillar generated a record Machinery, Energy & Transportation (ME&T) free cash flow of $10 billion in 2023 and returned a record $7.5 billion to shareholders through share repurchases and dividends [2]. - The company reported an operating cash flow of $2.1 billion in Q1 and ended the quarter with approximately $5 billion in cash and cash equivalents, alongside $2.2 billion in liquid marketable securities [3]. - The ME&T free cash flow for the quarter was $1.3 billion, with total shareholder returns amounting to $5.1 billion, including $0.6 billion in dividends and $4.5 billion in share repurchases [3]. Dividend History and Growth - Caterpillar has consistently increased its dividends for 30 consecutive years, maintaining its status as a dividend aristocrat, and has paid cash dividends every year since its inception [2]. - The company has a five-year dividend growth rate of 6.8%, with the previous dividend having a payout ratio of 23.7%, higher than the peer average of 22.6% [3]. Market Position and Expectations - Caterpillar has experienced year-over-year earnings growth for thirteen consecutive quarters, with a backlog of $27.9 billion at the end of Q1 [4]. - The company anticipates revenues in 2024 to be similar to the record levels of 2023, supported by strong underlying end markets and services revenue growth [4]. - Expected adjusted operating margin for 2024 is projected to be around 19.9% on revenues of $66.7 billion [4]. Segment Performance - The Construction Industries segment is expected to benefit from rising construction activities, while the Resource Industries segment will see growth driven by demand for commodities related to the energy transition [5]. - Strong order rates in the Energy & Transportation segment are anticipated to support revenue growth [5]. Cash Flow and Investment Plans - Caterpillar expects free cash flow in 2024 to be in the top half of the range of $5-$10 billion, driven by healthy customer demand and strong operating performance [5]. - The company has budgeted $2-$2.5 billion for capital expenditures, focusing on investments in autonomy, alternative fuels, connectivity, and digital and electrification [5]. Stock Performance - Over the past year, Caterpillar's stock has gained 34%, outperforming the industry growth of 27.8% and the S&P 500's 17.2% [7].