Analysts Forecast 22% Surge For This 'Dividend Aristocrat' Amid Economic Uncertainty

Despite the global economic uncertainty, Caterpillar Inc. CAT, a leading industrial firm, is being eyed as a promising investment. Analysts are forecasting a potential 22% rally in the company’s stock.

What Happened: With geopolitical tensions and high inflation causing market volatility, investors are turning to “Dividend Aristocrats,” such as Caterpillar Inc., for stability. These S&P 500 Index components have consistently increased their annual dividends for at least 25 consecutive years, making them a popular choice among investors, Barchart reported on Thursday.

Caterpillar Inc., established in 1925, is a globally recognized company that designs, manufactures, and markets construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and locomotives. The company’s stock has seen a 21.1% increase on a YTD basis, significantly outperforming the broad market.

Analysts maintain a positive outlook on the stock, giving it an overall rating of “Moderate Buy.” Among the 21 analysts covering CAT, 7 rate it as “Strong Buy,” 1 as “Moderate Buy,” 11 as “Hold,” and 2 as “Strong Sell,” the report added.

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Why It Matters: Caterpillar’s stock has consistently outperformed the market over the past decade, offering an average annual return of 13.19%. Despite its impressive rally in 2024, the stock appears reasonably valued with a forward price/earnings ratio lower than the industrial sector median and its 5-year average multiple of 18.10.

The company’s dividend yield stands at 1.44%, based on the current quarterly payout of $1.30 per share. Caterpillar has a history of raising its dividends for the past 30 years, and its payout ratio of 24.03% suggests room for continued dividend growth.

Caterpillar’s Q4 results revealed strong cash flow generation, with net cash flow from operating activities of $12.89 billion for the year, up 65.9% from the prior year. The company also boasts a robust cash balance of about $7 billion.

Analysts remain optimistic about the stock, with a mean price target of $322.79. However, analysts at Jefferies set a new Street-high target for the dividend stock in a bullish note last week, indicating that Caterpillar stock has 22.8% upside potential from Wednesday’s close.

Price Action: As per Benzinga Pro, Caterpillar closed at $358.33 which is 0.43% lower than its previous close. However, it was trading 0.05% higher at $358.50 during the after-hours at the time of writing this article.

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