**Company Description:**Caterpillar Inc. is the world's largest producer of earthmoving equipment, and a major manufacturer of mining equipment, electric power generators and engines used in petroleum markets.

**Fair Value:**In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price

2. 20-Year DCF Price

3. Avg. P/E Price

4. Graham Number

CAT is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 12.9% premium to its calculated fair value of $139.17. CAT did not earn any Stars in this section.

**Dividend Analytical Data:**In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout

2. Debt To Total Capital

3. Key Metrics

4. Dividend Growth Rate

5. Years of Div. Growth

6. Rolling 4-yr Div. > 15%

CAT earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. CAT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1914 and has increased its dividend payments for 26 consecutive years.

**Dividend Income vs. MMA:**Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.

2. Years to > MMA

CAT earned a Star in this section for its NPV MMA Diff. of $1,236. This amount is in excess of the $900 target I look for in a stock that has increased dividends as long as CAT has. If CAT grows its dividend at 9.0% per year, it will take 1 years to equal a MMA yielding an estimated 20-year average rate of 2.74%. CAT earned a check for the Key Metric 'Years to >MMA' since its 1 years is less than the 5 year target.

**Peers:**The company's peer group includes: The

**Deere & Company**(DE) with a 1.3% yield,

**Komatsu Ltd.**(KMTUY) with a 3.1% yield and

**Terex Corporation**(TEX) with a 0.0% yield.

**Conclusion:**CAT did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks CAT as a

**3-Star Hold**stock.

Using my

**D4L-PreScreen.xls**model, I determined the share price would need to increase to $178.81 before CAT's NPV MMA Differential decreased to the $900 minimum that I look for in a stock with 26 years of consecutive dividend increases. At that price the stock would yield 2.3%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $900 NPV MMA Differential, the calculated rate is 7.8%. This dividend growth rate is lower than the 9.0% used in this analysis, thus providing a margin of safety. CAT has a risk rating of 1.50 which classifies it as a Low risk stock.

CAT's business is highly dependent on global economic conditions. The company's Free Cash Flow Payout of 51% (down from 55%) is below my desired maximum. Its Debt To Total Capital of 72% (up from 35%) is well below my desired maximum. The stock is currently trading at a premium to my calculated fair value of $139.17. I will continue to evaluate CAT as a possible addition to my Dividend Growth Stocks Portfolio.

**Disclaimer:**Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock

**you**should do your own research and reach your own conclusion. See my Disclaimer for more information.

**Full Disclosure:**At the time of this writing, I held no position in CAT (0.0% of my Dividend Growth Portfolio). See a list of all

**my Dividend Growth Portfolio holdings**here.

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