We recently published a list of the 10 Dividend Stocks with Sustainable Payout Ratios. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against other best dividend stocks with sustainable payout ratios.
Dividend-paying stocks have remained popular among investors due to their strong historical performance. This sustained interest has led many companies to maintain their dividend payouts, raise them, or introduce new dividend policies altogether.
According to data from S&P Dow Jones Indices, US domestic common stocks saw a net dividend increase of $15.3 billion in the first quarter of 2025, which is an improvement over the $11.7 billion increase seen in the previous quarter. Over the 12 months ending in March 2025, dividend hikes amounted to $68.2 billion, just above the $68.1 billion reported the year before. Meanwhile, dividend cuts dropped significantly, totaling $15.6 billion, compared to $25.2 billion in the prior 12-month period.
The same report noted that overall dividend payments climbed by roughly 6% to 7%, though this was slightly below the pre-2025 expectation of 8%. In comparison, dividend payouts rose by 6.4% in 2024 and 5.1% in 2023.
Additional data from S&P Dow Jones Indices showed that 758 companies raised or initiated dividend payments in Q1 2025, which is a slight decline from 796 in the same period last year, reflecting a 4.8% year-over-year drop. Despite this, the total value of these increases amounted to $19.5 billion for the quarter. Over the 12-month period ending in March 2025, a total of 2,412 companies raised their dividend payments, marking a slight uptick from the 2,411 companies that did so in the same period the previous year. The total value of these dividend increases reached $68.2 billion, just edging past the $68.1 billion recorded during the prior 12-month stretch.
Howard Silverblatt, a Senior Index Analyst at S&P Dow Jones Indices, expressed continued optimism about the overall outlook for dividends. However, he also acknowledged some uncertainty ahead, given the current market conditions. He made the following comment about the situation.
“Dividend growth typically is strongest in Q1, as most companies finish their fiscal year and prepare for their shareholder meeting. For Q1 2025, growth, while noticeably slower, did continue and was in line with expectations given the current economic uncertainties. This uncertainty however did not appear to stop increases, though it did limit them, as forward commitment levels appeared shy.”
Despite some caution, analysts remain positive on dividend stocks, pointing out that US companies are well-positioned to sustain their payouts thanks to strong cash reserves. Nuveen, a financial planning firm based in Illinois, noted that an increasing number of companies are likely to roll out dividend policies, supported by the current cash-rich environment, which could drive stronger-than-expected dividend growth in 2025.
The report mentioned that as of September 30, 2024, corporate cash holdings stood at $1.8 trillion, which was close to their highest levels in the past 20 years. With equity valuations running above historical norms, Nuveen believes that companies may lean more toward boosting dividend payments as a way to return value to shareholders, rather than relying on stock buybacks, which may be less attractive in a higher-valuation landscape.
Analysts generally consider a payout ratio in the range of 30% to 50% to be optimal because it indicates that a company is returning a healthy portion of its earnings to shareholders while still retaining enough profits to reinvest in its business and support future growth.
A construction crew operating a hydraulic shovel during a nighttime project.
Our Methodology
For this article, we screened for companies that consistently distribute dividends to their shareholders. From this initial selection, we narrowed down the list to include only those companies with a 5-year average payout ratio below 50%, indicating a robust cash position. Subsequently, we identified the top 10 companies meeting these criteria and arranged them in ascending order of the number of hedge funds that held stakes in each of them, as per Insider Monkey’s database of Q4 2024.
At Insider Monkey, we are obsessed with hedge funds. 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Caterpillar Inc. (NYSE:CAT)
5-Year Average Payout Ratio: 39.72%
Caterpillar Inc. (NYSE:CAT) ranks eighth on our list of the best dividend stocks with sustainable payout ratios. The company, known for producing construction and mining equipment along with off-highway diesel and natural gas engines and gas turbines, has weathered larger challenges over its century-long history and has expanded significantly in recent years. Notably, its free cash flow has doubled over the past five years, giving the company a strong foundation to continue raising its dividend.
In the fourth quarter of 2024, Caterpillar Inc. (NYSE:CAT) reported revenue of $16.2 billion, which showed a 5% decline from the prior year. This drop was mainly due to an $859 million decrease in sales volume, driven by lower dealer inventories and reduced demand from end users. Dealer inventory levels shrank by $1.3 billion during the quarter, a sharper decline than the $900 million reduction seen in Q4 2023. Still, earnings per share climbed to $5.78, up from $5.28 a year earlier.
Caterpillar Inc. (NYSE:CAT) maintained strong financial health throughout 2024, generating $12.0 billion in operating cash flow and closing the year with $6.9 billion in cash. Over the past year, the company returned a combined $10.3 billion to shareholders—$7.7 billion through stock buybacks and $2.6 billion in dividends. Its consistent cash flow has supported 30 straight years of dividend growth. Moreover, its average payout ratio in the past five years comes in at nearly 40%. The company’s quarterly dividend comes in at $1.41 per share for a dividend yield of 1.92%, as recorded on April 17.
Overall, CAT ranks 8th on our list of the best dividend stocks with sustainable payout ratios. While we acknowledge the potential of CAT as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than CAT but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.