Lanny’s Recent Purchase – Re-Up in CAT

This has been a great month for dividends and dividend investing I feel.  There are quite a few nice stocks going on sale temporarily and if you like the company in a fundamentally sound way and they fit your criteria – then make a decision to investor or not… that is if you have the capital.  The month of March has been the busiest month so far for me in terms of contributions or capital going into my account – that is when you add my purchases, my dividends being reinvested, as well as my automatic 401k contributions.  A stock that I recently purchased earlier this month, in my eyes, went further on sale and I thought – if I liked it then, I like it even more now.  Move out of the way, as I am bulldozing for more Caterpillar (CAT)!

Intro to Caterpillar (CAT)

It all came pretty quick to me on Friday the 27th.  Well.. to back up, I purchased CAT on March 3rd because of the great metrics that they had, which included and not limited to: Dividend yield, dividend growth, price to earnings, payout ratio and share buy backs.  Fitting a great mold of the dividend stock screener we have.  Did I mention their yield trailing higher than their 5 year average?  I bought them back on March 3rd for roughly $83.305 per share.  I thought I had the steal of a lifetime initiating that position!  I think it is worth to mention their 52-week high is at $111.46 current – so the $83.305 showed a decline of 25%!  Isn’t that wild?  Similarly to when I scoop up IBM, I thought this dividend stock has a 3 year DGR of 15.40% and a 5 year DGR of 10.87% aka – their dividend increases recently have been higher but their long term average increase is still over double digits, impressive (see the impact of the DGR!).  So you are darn right I bought them back in early March!  I grabbed roughly 18 shares then which produced $50 in forward dividend income for me at the time, I was pumped and it felt nice to have them in my portfolio, as they are a stock I’ve watched for a very long time – such as when they were in the 100’s and then 90’s and then.. well, I think you get the picture.

CAT on the move

The last few weeks CAT has been taking a few dings to their trucks, loaders and dozers and I have an inner rule where if a great company such as this one that I own drops 5% from the last purchase price I paid – I should re-up on them if I have the capital, as long as nothing fundamentally has changed – i.e. bankruptcy, dividend cuts, management turnover, fraud activity (sorry ARCP) or some other form of behavior that essentially tears the soundness from a company.  This month, however, I saw Caterpillar or CAT drop by a few percent throughout the weeks and thought, we are getting closer… and closer to that ex-dividend date of April 16th and they are fitting around that 5% inner-rule drop.  Well… Friday March 27th, the price hit $79.06 and I had it calculated that it was over a 5% decline from my $83.305 purchase (5.1% to be closer).

The metrics came to better valuations and a yield that was now over 3.50%, much higher than the 5 year average of 2.40%.  With the decrease in share price it also has led me to feel, which I’m eager to read the 1st quarter results, if any further repurchases were occurring.  March 27th also showed me that I only had 3 weeks until their ex-dividend date, and I didn’t want to wait much further – considering by the end of the day CAT came back up to $79.67 after my purchase at $79.06.  I didn’t want to play the game this go around of – “I’ll wait closer to the ex-date” because in the end – that doesn’t matter, as if I felt it was great value and the price shows a discount to the company – then of course I should take the opportunity.  I won’t bore you with the valuation aspect (payout less than 60%, yield greater than 3.50%, P/E below 17, strong increases, etc..).  I clicked that buy button.  If it wasn’t for the ability or at least attempt to save more than 60% of my income, there’s no way I would be able to have the capital to make these purchases.  I’m very lucky to be able to make a decent salary that allows me to live in a house that still provides me a remote ability to save such a high percentage.  Luckily I’ve been through busy season – which means increase of travel and office bought breakfasts, lunches and dinners; allowing me to save more than I traditionally am able to (February savings was a great month).  So lucky to be able to make this purchase.

CAT Conclusion

I ended up purchasing 19 shares at $79.06 for approximately the same contribution as my last purchase, just 1 extra share due to the price decline.  I added $53.20 to my forward dividend income total and am now projected to receive $103 from good old Caterpillar.  Feeling very good about this!  I will have my portfolio updated for the new purchase.  What are your thoughts on the purchase and my contribution to CAT?  Do you like where it is valued at?  Would you have made a subsequent purchase?  Other opportunities you see?  Thanks everyone for stopping by!  Talk soon.

-Lanny

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12 thoughts on “Lanny’s Recent Purchase – Re-Up in CAT

  1. Lanny,

    It looks pretty solid to me. CAT yielding 3.5% is good for current income and could create a 5% YOC in only four or five years. I plan on adding more shares as well. PM and CAT both continue to be high on my non energy radar screen.

    MDP

    • MDP,

      Thank you for coming by — definitely am liking CAT and can’t wait until their dividends start rolling in, as well as an increase later on this year. I like your call with monitoring both of them and adding when you can. Let’s ROLL!!!!

      -Lanny

    • DH,

      Smart concept – seeing the construction and development – Boom.. there she i, right? Thanks for the post – it’s always fun seeing stock in the companies you own, do some work, just awesome.

      -Lanny

  2. I was looking at CAT for the last couple weeks and was going to wait closer to the ex-div date. But, you are right, why wait when the fundamentals are great and you have some capital to deploy. I will be initiating a position in CAT next week. Thanks for your insight!
    Cheers!
    Ron

    • Ron,

      Thanks for rolling by! That was my standpoint – if I like the company, have bought it before and was well before the ex date that first purchase, why wouldn’t I buy again when it takes a 5% discount?

      Nice work! Let us know when you make the position in them, looking forward to it!

      -Lanny

  3. Hey Lanny,

    Great purchase! I bought some CAT shares a few months ago, and I’m very tempted to add some more at this price! I also like your rule about the 5% price decrease, I might start using it myself, although the problem is often that there are too many opportunities and too few funds!

    Cheers,

    DL

    • DL,

      Temptation is there isn’t it?! It’s hard – like you’ve said, with the funds there to make these purchases; wish we had an endless supply to take advantage of the “common sense” investing approach. Maybe I’ll write an article regarding my inner 5% rule — thinking of applying it?

      Thanks again DL, keep killing it!

      -Lanny

    • Patrick,

      Nice! Thank you for coming by, not a bad stock if you ask me – great div growth, decent valuation from a P/E standpoint, solid payout ratio and great history/brand/company. Keep us posted!

      -Lanny

  4. Lanny,

    CAT’s a great company. Definitely cyclical, so that’s something to be mindful of. But they keep pumping out and growing that hefty dividend, even through the cycles.

    Enjoy that extra $50+ per year!!

    Best wishes.

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