How to Earn $500 Per Month From Caterpillar In Dividends Following The Latest Dividend Increase

With three decades of consistent dividend increases and a roughly 40% gain in stock price over the past year, Caterpillar Inc. CAT is one of the most notable dividend stocks in the market. Analysts believe Caterpillar is a defensive play for long-term investors as the company is positioned well to benefit from the expected increase in infrastructure spending in the U.S. and the global economic boom. Caterpillar's business is diversified across construction equipment, power generation, energy and transportation, with increasing exposure to electrification, digital solutions and alternative fuels.

Caterpillar stock has a new growth catalyst: backup power generators for data centers. As tech companies establish data centers worldwide to power their generative AI apps, they need data centers with uninterrupted power access. Caterpillar's reciprocating engines for data centers are already seeing a rise in demand. During the first-quarter earnings call, Caterpillar's management said the company plans a "multiyear capital investment" in its reciprocating engine division to double its output for large engines and aftermarket parts compared with last year.

Caterpillar's P/E ratio is around 15 as of June 25, which is low compared to the industry average of 18. While Caterpillar's growth is facing headwinds amid a decline in construction activity in residential markets in the US and Europe, analysts believe the company is set to see a rebound in growth following the beginning of rate cuts from the Federal Reserve. Wall Street expects Caterpillar's earnings to grow 5% next year and 7% per annum on average for the next five years. However, these growth estimates can increase amid Caterpillar's expansion into new business segments such as AI, data analytics and alternative fuels.

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In addition to these growth catalysts, Caterpillar's shareholder returns are also increasing. During the first quarter, the company allocated $5.1 billion for share repurchases and dividends. Over the past five years, the company's dividend has grown at a CAGR of 8.6%. The stock's payout ratio is 25%, which means the company allocates a substantial amount of cash to future growth.

In this backdrop, it'd be interesting to know how you can earn $500 monthly in dividends from Caterpillar. Let's find out.

How to Earn $500 a Month From Caterpillar Following the Latest Dividend Hike

Before we begin, it's important to note that since Caterpillar increased its quarterly dividend to $1.41 per share from $1.30 on June 12, we'd be using the latest dividend for our calculations. However, please keep in mind that the new dividend is payable on August 20 to shareholders of record on July 22.

First, we will calculate the number of Caterpillar shares you need to buy to reach your income goal. An income of $500 per month means you will generate $6,000 per year in dividends from Caterpillar. Assuming a dividend of $1.41 per share (new dividend after the latest increase, effective August 20), Caterpillar's annual dividend comes out to be $5.64 ($1.41 x 4 = $5.64).

Number of shares needed = $6,000 / $5.64 = 1,063.829

To earn $500 a month from Caterpillar, you need to buy about 1,064 shares of the company.

Total Investment Needed to Earn $500 a Month from Caterpillar Dividends

Let’s calculate the investment you need to make in Caterpillar to reach the $500/month dividend goal. We will multiply the total number of shares by the stock’s latest price. CAT closed at $330 on June 24.

Total Investment Needed to Earn $500/month from Caterpillar in Dividends = $330 x 1,064 = $351,120

To earn $500 monthly in dividends from Caterpillar, you’d need to invest about $351,120 in the company.

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