3 Industrial Goods Companies With Sustainable Dividend Payout Ratios

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 |  Includes: CAT, CMI, JOY, USA
by: Jeff Williams

When looking for companies with strong growth potential in the industrial goods sector and a history of paying dividends, Caterpillar Inc. (NYSE:CAT), Joy Global Inc. (NYSE:JOY) and Cummins Inc. (NYSE:CMI) are all very interesting stocks that meet these criteria. All three of these companies are well positioned to capitalize on growth, while maintaining a sustainable payout ratio.

Caterpillar

"For more than 85 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. With 2011 sales and revenues of $60.138 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services." (Company website)

Caterpillar has had a rich history of dividend payments. Looking back from the year 2002, Caterpillar has had a steady history of dividend increases. During the financial crisis of 2008 into 2009, Caterpillar was able to grow its dividend from $1.62 to $1.68 or an increase of 3.5%.

Below is a Chart of the dividend payout per year, for Caterpillar's common shares. (Click charts to enlarge.)

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The current dividend payment as of April 23rd, 2012 for Caterpillar is $.46 USD per common share. In 2012, Caterpillar is expected to have an estimated EPS of $9.43. Estimating Caterpillar's sales at $70 billion, a profit margin of 8.79% and a projected profit of $6.153 billion, Caterpillar will have an estimated EPS of $9.43. With an expected dividend payout of $1.84 and an EPS of $9.43, Caterpillar will have a payout ratio in 2012 of 19.5%.

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With a payout ratio of 19.5% or .195, Caterpillar should be able to at least maintain its dividend. As the expected payout ratio is under the company's 10 year historical payout ratio average of .42, I would not be surprised to see a modest dividend increase in the next year. This is conditional as long as the company's estimated growth stays on course.

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While focusing on growth in the industrial goods sector, Caterpillar has been able to increase its dividend and could look to continue increasing its dividend in the foreseeable future. The current yield for Caterpillar is 1.8278.

For more information read my article: Caterpillar: A Stratigic Approach To Acquisitions and Economic Diversification.

Joy Global Inc.

"Our business is focused solely on serving surface and underground mining operations with superior equipment and direct service that achieves the lowest cost per unit of production over the life cycle." (Company Website)

Joy Global Inc. has had a good history of dividend payments while still focusing on growth. Looking back from the year 2004, Joy Global's dividend has gone from $.122 in 2004 to $.70 in 2011.

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The current dividend payment as of March 5, 2012, for Joy Global Inc. is $.17 USD per common share. In 2012, Joy Global Inc is expected to have an estimated EPS of $7.82. Estimating Joy Global's sales at $5.63 billion, a profit margin of 14.7% and a projected profit of $6.153 billion, JOYG will have an estimated EPS of $7.82. With an expected dividend payout of $.70 and an EPS of $7.82, Joy Global will have a payout ratio in 2012 of 8.95%.

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With a payout ratio of 8.85% or .0885, Joy Global Inc. should be able to at least maintain its dividend. The current expected payout ratio for 2012 is well under the company's 8 year historical payout ratio average of .19.

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While focusing on growth in the industrial goods sector, Joy Global has been able to increase its dividend and will look to continue to focus growth in the near future. The current yield for Joy Global Inc. is 1.0523.

For more information, view my article: Joy Global: Future In Emerging Market Growth

Cummins Inc.

"Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (NYSE:USA) Cummins employs approximately 44,000 people worldwide and serves customers in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributor locations and approximately 6,500 dealer locations." (Company Website)

Cummins Inc. has had a strong history of dividend payments. Looking back from the year 2003, Cummins has also had a steady history of dividend increases. During the financial crisis of 2008 into 2009, Cummins was able to grow its dividend from $.60 to $.70 or an increase of 14%.

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The current dividend payment as of February 4th, 2012, for Cummins Inc. is $.40 USD per common share. In 2012, analysts are estimating Cummins Inc. to have an EPS of $10.57. Estimating Cummins Inc. sales at $20.08 billion, a profit margin of 10.1% and a projected profit of $2.02 billion, Cummins Inc. will have an estimated EPS of $10.57. With an expected dividend payout of $1.60 and an EPS of $10.57, Cummins Inc. will have a payout ratio in 2012 of 15.1%.

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With a payout ratio of 15.1% or .151, Cummins Inc. should be able to at least maintain its dividend. The current expected payout ratio for 2012 is currently "in line" with company's 8 year historical payout ratio average of .155.

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While focusing on growth in the industrial goods sector, Cummins Inc. has been able to increase its dividend and will look to continue to focus growth in the near future. The current yield for Cummins Inc. is 1.4938.

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Based off of the forward looking EPS, all three of the companies have sustainable payout ratios.

  • Caterpillar Inc. = 19.5%
  • Joy Global Inc. = 8.85%
  • Cummins Inc. = 15.1%

With all of the companies having dividend payout ratios below 20%, they should be able to maintain their dividends while maintaining their focus on growth and in some cases the companies should increase the dividend, looking forward into 2013.

For more information on more income growth dividend stocks, view my article: 3 Income Growth Companies With A History Of Increasing Yields

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.