We recently published a list of 10 Best Innovative Stocks that Pay Dividends. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against the other best innovative stocks that pay dividends.
Innovation plays a crucial role in today’s market. With the significant attention tech stocks have gained over the past year, it’s clear where investors are directing their funds. Tech firms are leveraging disruptive technologies like artificial intelligence to process vast, complex datasets. In the healthcare sector, advancements in research and development (R&D) have led to life-saving drug therapies and treatments. Meanwhile, the growing impact of climate change is pushing energy and utility companies to prioritize renewable energy sources. Therefore, innovation lies at the heart of every industry today.
Businesses in the US and globally swiftly recognized the influence of innovation on their growth and operations, and they are gradually shaping their activities around it. A recent McKinsey survey of over 1,000 executives revealed that companies with a strong culture of innovation are twice as successful as some of their peers in scaling digital transformations. These innovative firms focus on technologies and changes to their operating models that promote rapid learning and adaptation—essential components of innovation. The report also highlighted that 14 of the top 20 global companies have leveraged innovation to either expand existing markets or create entirely new ones.
Read also: Top 18 Automotive Industry Innovations and Trends
A key component of innovation is R&D, which focuses on systematic and scientific investigation to create new products, technologies, or processes. Through R&D investments, companies can strengthen their abilities, explore fresh ideas, and discover innovative solutions to address customer demands. Businesses worldwide, particularly in the pharmaceutical sector, have boosted their R&D investments to develop new products that meet the demands of their customers. Financial Times reported that R&D in the US has grown in recent decades, increasing from 2.2% of GDP in the 1980s to 3.4% in 2021. This rise is mainly due to the private sector’s contribution, which doubled to 2.5% of GDP. Moreover, the percentage of the population involved in patent creation almost doubled during this time.
It’s not just established companies that are embracing innovation in their operations; the rise of US startups also reflects this trend, as they introduce groundbreaking business ideas previously unheard of. Economist John Haltiwanger found that Americans were starting new businesses at an unprecedented rate. And he’s not mistaken. In 2020, more new businesses were launched than in any previous year, with 2021 following closely behind. According to the Kauffman Indicators of Entrepreneurship, the one-year survival rate for these startups exceeded 80% in 2021, marking the highest rate since 1999. Haltiwanger noted that a surge in new businesses is a strong indicator of job creation, innovation, and productivity growth within the economy. He further said that startup booms not only reflect technological innovation but also significantly drive it. Startups explore how to leverage new technologies, experiment with them, and create new products, pushing competitors to adapt and innovate in response. Research from Texas McCombs, which examined 6,116 patents from the mid-1970s to 2016, highlighted the impact of startups on innovation. The study found that patents from startups were cited 8.5% more each year and 21% more over a nine-year period compared to patents from established companies.
Our Methodology:
For this article, we scanned Insider Monkey’s database of 912 hedge funds as of Q2 2024 and picked companies that actively prioritize and promote the development of new and groundbreaking ideas, products, services, or business processes. From that list, we picked 10 stocks with the highest number of hedge fund investors and ranked them in ascending order of hedge funds’ sentiment towards them. These companies belong to different sectors, including healthcare, technology, aerospace, and defense.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A construction crew operating a hydraulic shovel during a nighttime project.
Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 49
Caterpillar Inc. (NYSE:CAT) is an American company that specializes in construction, mining, and other engineering equipment. In the early 20th century, the company developed the first effective track-type tractor, commonly referred to as a crawler. This innovation transformed earthmoving and construction machinery by offering improved traction and maneuverability on difficult terrains. It is among the best innovative stocks that pay dividends.
Caterpillar Inc. (NYSE:CAT) has jumped almost 21% since the beginning of 2024, driven by its involvement in several new economic trends. These include the shift towards energy transition and its effect on the company’s sales, as well as its adoption of technology—such as e-commerce and digital tools—to boost its more stable services revenue. In addition, the company is also benefitting from the housing market. Diamond Hill Capital also highlighted this in its Q1 2024 investor letter. Here is what the firm has to say:
“Other top contributors included Allstate, Caterpillar Inc. (NYSE:CAT) and General Motors. Shares of heavy construction machinery manufacturer Caterpillar benefited from a positive US housing market, which despite rising interest rates, is seeing strong demand in the face of relatively short housing supply.”
Caterpillar Inc. (NYSE:CAT) is also a strong company from a dividend point of view. In the second quarter of 2024, the company reported an enterprise operating cash flow of $3 billion. Moreover, it ended the quarter with $4.3 billion available in cash. The company remained committed to its shareholder obligation, returning $0.6 billion to investors through dividends during the quarter.
On June 12, Caterpillar Inc. (NYSE:CAT) declared an 8.5% hike in its quarterly dividend to $1.41 per share. Through this increase, the company stretched its dividend growth streak to 30 years, which makes CAT one of the best innovative dividend stocks on our list. The stock has a dividend yield of 1.60%, as of September 18.
The number of hedge funds tracked by Insider Monkey owning stakes in Caterpillar Inc. (NYSE:CAT) grew to 49 in Q2 2024, from 45 in the previous quarter. These stakes have a total value of $6.4 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q2.
Overall, CAT ranks 1oth on our list of best innovative stocks that pay dividends. While we acknowledge the potential for CAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.