Sunday, October 30, 2016

Recent Sell: Caterpillar Inc


Caterpillar, Inc. (NYSE:CAT) was founded in 1925 and is headquartered in Peoria, IL. CAT manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It provides technology for construction, transportation, mining, forestry, energy, logistics, electronics, financing and electric power generation.

I bought shares of CAT on two occasions, in August 2013 and in February 2015. After my initial purchase, the stock shot up nicely but in summer of 2014 things turned around. CAT slid all the way down to about $58 before turning around and launching somewhat of a recovery.

This short article explains why I closed my CAT position.

In my latest DivGro Pulse article, I concluded that it was time to part ways with CAT. The stock has made a decent comeback even after experiencing a 15% drop in revenue. I rate the stock 4-stars and it is ranked #36 out of 49 stocks in my DivGro portfolio.

I'm concerned about CAT's near-term future, as revenue is expected to drop even further in 2017. Falling commodity prices in the farming, mining, and oil industries have caused deep cuts in equipment spending. CAT's third-quarter results were poor, with profits cut by nearly 50% and revenue down 16% from the year-ago quarter.

While CAT's aggressive cost-cutting measures have helped to mitigate the impact of lower sales, such measures can go only so far. Construction activity in North America is expected to be lower in the second half of 2016 and into 2017. In Europe, continuing uncertainty in light of the Brexit vote is cause for concern. In a statement accompanying the third-quarter results, the outgoing CEO, Doug Oberhelman said:
"While we are seeing early signals of improvement in some areas, we continue to face a number of challenges. We remain cautious as we look ahead to 2017, but are hopeful as the year unfolds we will begin to see more positive momentum. Whether or not that happens, we are continuing to prepare for a better future." 
Oberhelman will be replaced by a 35-year company veteran, Jim Umpleby, who will have to tackle the challenges the company will face in the near-term future.

With the stocks' recent price action, I took the opportunity to sell my shares just above breakeven. Here is a 3-year price history chart of CAT that shows my buy and sell prices:


Trading Summary

2013-08-20Bought: 30 shares of CAT at $83.625 per share:$2,508.75
2013-11-20 Dividend on 30 shares at 60¢ per share: $18.00
2014-02-20 Dividend on 30 shares at 60¢ per share: $18.00
2014-05-20 Dividend on 30 shares at 70¢ per share: $18.00
2014-08-20 Dividend on 30 shares at 70¢ per share: $21.00
2014-11-20 Dividend on 30 shares at 70¢ per share: $21.00
2015-02-02Bought: 30 shares of CAT at $79.64 per share: $2,389.20
2015-02-20 Dividend on 60 shares at 70¢ per share: $21.00
2015-05-20 Dividend on 60 shares at 77¢ per share: $42.00
2015-08-20 Dividend on 60 shares at 77¢ per share: $46.20
2015-11-20 Dividend on 60 shares at 77¢ per share: $46.20
2016-02-22 Dividend on 60 shares at 77¢ per share: $46.20
2016-05-20 Dividend on 60 shares at 77¢ per share: $46.20
2016-08-22 Dividend on 60 shares at 77¢ per share: $46.20
2016-10-25
  Sold 60 shares of  CAT at $84.60 per share:
$
5,076.00
2016-11-22 Dividend on 60 shares at 77¢ per share: $46.20
Capital gain:
$
178.05

Dividends received:
$
436.20

Commissions/fees/taxes:
$
6.11

Net gain:
$
608.14

I made a net gain of 12.42% on the original amount invested, which is 5.02% annualized.

Closing my CAT position removed $184.80 from DivGro's projected annual dividend income (PADI), which now totals $11,153. I still have some ways to go to reach my end-of-year goal of $12,000.

Thanks for reading! Do you own CAT and, if so, are you going to hold onto your shares or sell them?
Please let me know what you think in the comment section below. 

2 comments :

  1. I do own CAT and will continue to hold my shares even though the future outlook in the near term looks shaky at best. These days one must question the dividend of CAT and while I don't think a cut is imminent I doubt there will be any real growth to speak of either. That payout ratio is in an uncomfortable range. Thanks for sharing.

    ReplyDelete
    Replies
    1. Thanks for commenting, Keith. I hope for your sake you're right about CAT not cutting its dividend. I just noticed the payout ratio is almost 200% (http://finance.yahoo.com/quote/CAT/key-statistics?p=CAT) at present. While this might be a short term problem, I don't like the fact that CAT guided lower for 2016 and into 2017. That makes me think the road to recovery could be very steep.

      All the best and happy investing!

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