Now that the results of the U.S. elections are in, it’s a good time for investors to evaluate their portfolios. Investors will want to make sure their stock holdings are positioned well for the incoming administration.
The policies employed by a Trump administration are likely to benefit several sectors of the economy. This is why U.S. stocks have rallied since the election.
For example, U.S. industrial giant Caterpillar (NYSE: CAT) has been a major winner since Trump sealed victory in the election. The stock is up 12% just since the election.
Now that Trump is set to be the next president, it is likely the administration will pursue fiscal stimulus to reinvigorate economic growth. This could include higher levels of infrastructure spending, and perhaps de-regulation of some of the industries Caterpillar supplies.
As a result, Caterpillar stock could continue to be a major winner during a Trump administration.
Industry Downturn and Caterpillar Stock
Caterpillar is a global company with a strong brand name. The economic recovery since the Great Recession has given Caterpillar a long runway of growth over the past several years. For example, Caterpillar’s total sales increased 17% last year.
Earnings per share increased 37% excluding restructuring costs. It appeared Caterpillar had a lot of momentum coming into 2016, but unfortunately the economic environment turned south quickly.
The last year has been a rough one for Caterpillar. It is a manufacturer of heavy equipment and Earth-moving machines that cater to the construction and mining industries.
A massive decline in commodity prices has put a dent in the precious metals industry. As a result, Caterpillar has struggled so far this year. Third-quarter sales fell 16%.
In addition to the downturn in commodities, Caterpillar is challenged by slowing economic growth in the emerging markets. Emerging market nations like China are increasingly important growth drivers for Caterpillar.
If that weren’t bad enough, the strong U.S. dollar is making exports less competitive, and reducing the value of revenue generated overseas.
Caterpillar is trying to offset these headwinds by reducing costs across the business. It has implemented a significant restructuring to right-size its cost structure.
This effort is starting to pay off. Last quarter, Caterpillar lowered its variable manufacturing costs by $234 million. It also reduced its period costs by $420 million. This allowed the company to offset much of the negative impact from a weak sales environment and a strong U.S. dollar.
The outlook for 2016 is not all that promising. Conditions are expected to remain weak for the full year. Revenue is projected to drop another 29%, to $39 billion.
Still, the company should remain profitable. Management forecasts the company will earn $3.25 per share excluding restructuring costs. This will help the company maintain its dividend, and position it well to benefit from a recovery in 2017 and beyond.
This is especially true if policies are employed that will boost infrastructure spending. Caterpillar’s heavy machinery will likely be needed to repair the nation’s deteriorating roads, bridges, and dams. New infrastructure projects set forth by the Trump administration could be exactly the catalyst that Caterpillar’s recovery needs.
Caterpillar Stock for Growth and Income
In addition, Caterpillar stock offers investors a 3.3% dividend yield. This is a significantly higher yield than the S&P 500 Index, which has a 2% average dividend yield.
And, Caterpillar is a great dividend growth stock. It has paid higher annual dividends to shareholders for 23 years in a row. The company has paid a cash dividend each and every year since it was formed all the way back in 1925.
Since 2007, Caterpillar has more than doubled its dividend.
As a result, Caterpillar stock is an attractive pick for investors looking for income as well as growth. The stock has something to offer a number of different investor types.