We recently compiled a list of the Dividend Stock Portfolio: 8 Stocks To Invest In According to Reddit. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against the other dividend stocks.
Investment trends have been shifting steadily in line with market movements. Technology stocks have become the focal point, outpacing all other asset classes. Moreover, dividend stocks are gaining traction with investors due to their capacity to provide steady income. While these stocks are trailing behind the broader market, the inclusion of major tech companies in the dividend space has sparked enthusiasm among financial experts regarding the future of dividend investing. Retail investors are also on the lookout for reliable income sources, reinforcing this trend. According to a report by JPMorgan Chase, non-professional investors now account for a larger portion of the US options market than ever before, with a particular focus on short-term trades and a preference for technology stocks. In June, retail traders set a new record by contributing 18.3% of all options activity. Over 60% of their trades involved contracts set to expire within a week or less, with tech options being the most popular choice in individual stock trades.
A Forbes report highlighted that retail trading hit a peak in 2023, making up around 23% of the trading volume during one week early in the year. This demonstrates that the influence of retail investors extends beyond the meme stock craze. The report, which also referenced data from the Federal Reserve System, noted that despite recession concerns, median net worth jumped 37% between 2019 and 2022, marking a record increase. As a result, more people became active in the stock market.
Retail investors, much like experienced investors, are increasingly drawn to dividend stocks due to the growing interest in them. When investing in dividend stocks, investors tend to favor high-quality companies—those with a strong history of regularly raising their dividends. Experts have observed that the Dividend Aristocrats index, which tracks firms with a minimum of 25 consecutive years of dividend growth, has delivered better performance than the broader market over time. Dan Lefkovitz, a strategist for Morningstar Indexes, also favored dividend stocks in the current market environment. Here are some comments from the analyst:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”
Despite underperforming last year, global companies still delivered record dividends to shareholders. Income investors worldwide saw a particularly strong second quarter in 2024. According to the latest Janus Henderson Global Dividend Index report, payouts increased by 5.8% on a headline basis, reaching an all-time high of US$606.1 billion. The underlying growth was even more robust at 8.2%, once the impact of exchange rates, especially the weak Japanese yen, was factored in. Following this strong performance and accounting for the significant contributions from new dividend payers this year, Janus Henderson has upgraded its 2024 dividend forecast. The global dividend distribution is now projected to reach US$1.74 trillion, reflecting a 6.4% underlying growth compared to 2023 (up from the previously expected 5.0%) and a headline rise of 4.7% (up from 3.9%). With this, we will discuss some of the best dividend stocks for a dividend stock portfolio.
Our Methodology:
For this list, we carefully examined popular Reddit trading forums such as r/dividends, r/WallStreetBets, r/stocks, and r/trading, where everyday investors discuss and exchange investment ideas. After conducting comprehensive research and analysis, we selected 20 dividend stocks that were getting a lot of attention on Reddit as of September 21. From this group, we chose 15 stocks that had the most hedge fund investors, as tracked by Insider Monkey, during the second quarter of 2024.
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 a Texas-based company that specializes in construction, mining, and other engineering equipment. The company has gained popularity among retail investors due to its broad range of businesses and consistent revenue growth. Since the start of 2024, CAT has surged over 26%, fueled by its engagement in emerging economic trends like the energy transition, which has positively impacted sales. Additionally, the company’s embrace of technology, including e-commerce and digital tools, has helped strengthen its stable revenue from services.
Caterpillar Inc. (NYSE:CAT) is also benefitting a lot from the housing market. Diamond Hill Capital also highlighted this in its Q1 2024 investor letter:
“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) has maintained a strong cash position over the years. In the second quarter of 2024, the company’s enterprise operating cash flow came in at $3 billion. It ended the quarter with $4.3 billion available in cash. The company returned $0.6 billion to shareholders through dividends during the quarter, showing its commitment to investors.
One of the best stocks for a dividend stock portfolio, Caterpillar Inc. (NYSE:CAT) has been growing its dividends for the past 30 years. In the past five years, it has raised its payouts at an annual average rate of over 8%. Currently, it pays a quarterly dividend of $1.41 per share and supports a dividend yield of 1.53%, as of September 21.
As of the close of Q2 2024, 49 hedge funds, up from 45 in the previous quarter, owned stakes in Caterpillar Inc. (NYSE:CAT), as per Insider Monkey’s database. These stakes have a consolidated value of $6.4 billion.
Overall CAT ranks 7th on our list of the best dividend stocks to buy. While we acknowledge the potential of 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.