For patient, savvy investors looking for long term gains, Caterpillar (NYSE: CAT) is a very appealing stock for a variety of factors.
Caterpillar, a member of the Dow Jones Industrial Average (NYSE: DIA), is the world’s largest heavy equipment maker.
It is also a very volatile stock. The beta for Caterpillar is 1.65. That means that the share price for Caterpillar moves up and down nearly two-thirds as much as the stock market as a whole. There is nothing wrong with that: for investors, there is much to like about it, as a matter of fact.
Investors who wait patiently can pick up shares when it is on a temporary downswing.
There is no way to know if it will come back up, however. But Caterpillar is a great company. That is why it is a member of the Dow Jones Industrial Average. So investors should develop a measure to utilize as to when to buy stock in Caterpillar, or other volatile blue chips.
The dividend yield is a useful standard for this.
When a stock price falls, the dividend yield rises. At present, the dividend yield for Caterpillar is about 3 percent. That is around 50 percent higher than the average dividend yield for a member of the Standard & Poo’s 500 Index (NYSE: SPY). That good be a good target dividend yield for some investors. Others will obviously want a different dividend yield: that is all a matter of personal choice by an individual investor.
There is certainly ample movement in the stock price of Caterpillar, to be sure. Overall, Caterpillar is up nearly 6 percent for 2014 (chart below). But it is off for the last month, quarter, and six months of market action. That provides investors with the chance to buy when the stock price is low and the dividend yield is high, leading to rewarding total returns for Caterpillar over the long term.