While Caterpillar (NYSE: CAT) is up due to its earnings beating expectations, there is a good chance the stock price will dip in the future. Even though Caterpillar is a member of the Dow Jones Industrial Average (NYSE: DIA) and the world’s largest heavy equipment maker, it has a high beta. That means that the share price of Caterpillar moves up and down more than the stock market as a whole.
Investors should buy for the long term based on those fluctuations.
There are many solid stocks that are more volatile than the market as a whole. Alcoa (NYSE: AA), another member of the Dow Jones Industrial Average, and BP PLC (NYSE: BP), the second largest oil and natural gas company in Europe, are two others. There are many more like this as companies such as Alcoa, BP, and Caterpillar will move in price based on growth numbers from China or the cost of commodities.
In addition to the price moving more, the dividend yield from Caterpillar is also higher than the average for the market. At present, the average dividend yield for a member of the Standard & Poor’s 500 Index (NYSE: SPY) is around 1.9 percent. As a dividend income stock, Caterpillar has a yield of 2.63 percent.
When the share price for Caterpillar declines, the dividend income becomes that much more attractive.
For long term investors, Caterpillar is positioned well to profit from the growth in emerging market countries. Many previous articles on this site have detailed how much of the world’s economic growth in the future will be in China, India, and other emerging market nations. The equipment from Caterpillar will be needed for the food, mining, and construction sectors, among many others. Due to its size, Caterpillar will most likely never have jaw dropping growth numbers. But buying when the share price declines will allow for long term investors to gain from greater total returns.