Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Caterpillar Inc. (CAT), Ford Motor Company (F): Two Undervalued Dividend Stocks to Buy Now

Page 1 of 2

Ford Motor Company (NYSE:F)Some dividend stocks aren’t great, and some are just plain bad. Some dividends themselves aren’t sustainable, while some aren’t even worth your time. But let’s look at two stocks that offer yields near 3% and may offer even more upside with the stock prices themselves: Caterpillar Inc. (NYSE:CAT) and Ford Motor Company (NYSE:F).

Caterpillar trades at a P/E of 9.5, which is below the industry average of 12 and even further below its historical average of around 16. Ford trades at a ratio of 9, which is drastically below its industry average of 31 and under half of what competitors Toyota Motor Corporation (ADR) (NYSE:TM) and Honda trade at.

Let’s look at Ford first.

Ford
Ford Motor Company (NYSE:F) is a great turnaround story, having rebounded from losses of more than $30 billion in the 2006-08 period to become profitable today. It got there without a bailout, unlike its Detroit peers, and that has helped it maintain a favorable brand image. Since the recession, it’s estimated that Ford Motor Company (NYSE:F) has been able to lower operating costs and grow its economies of scale enough that it’s estimated to be able to break even in an environment of 10 million vehicle sales a year, even as sales are expected to reach 15.4 million in the U.S. this year.

Things are also looking positive for Ford Motor Company (NYSE:F)’s first-quarter earnings release next week. The Fusion had its best quarter of sales ever, the Escape also posted record sales months during the quarter, and the F-Series — which brings home immense profits — has sold extremely well so far this year.

In January, Ford Motor Company (NYSE:F) doubled its dividend from $0.20 a share annually to $0.40. That puts us right at a 3% yield, which begins to open the door for income investors, who could provide more demand for the stock going forward. It’s also possible that with a forward payout ratio of 22%, Ford Motor Company (NYSE:F) could opt to increase the dividend yet again — though I wouldn’t expect a move until losses in Europe subside. I think it’s a good time to buy this stock, which goes ex-dividend on May 1.

Caterpillar
Caterpillar Inc. (NYSE:CAT) is the No. 1 global player in its market and has a strong economic moat protecting its profits. Its large dealer network is known for great servicing and high quality, helping grow its brand image above its competitors. Right now, though, Caterpillar Inc. (NYSE:CAT) faces short-term headwinds, as it relies on international sales for the majority of its profits. The U.S. economy is slowly rebounding, but the global recovery is much slower. The acquisition of Bucyrus — which gets almost half of its operating profits from the mining end market — is also putting a drag on the company. But when emerging markets — notably China, India, and Africa — begin to pick up steam, the upswing in building more infrastructure in those regions will boost sales for Caterpillar Inc. (NYSE:CAT). This company could still have its best days ahead.

Caterpillar Inc. (NYSE:CAT)’s quarterly dividend of $0.52 works out to a 2.4% annual yield. The company also has a long track record of upping its dividends to shareholders, having done so for 19 consecutive years.

Bottom line

Page 1 of 2
Loading Comments...