Caterpillar (ticker: CAT) held an event for analysts and investors on Tuesday and announced a surprise gift to shareholders, more cash. Of course, it’s not exactly a gift since shareholders own the company. Still, Caterpillar used the occasion to announce a new share repurchase authorization of about $ 15 billion, which amounts to roughly 13% of its market capitalization.
According to the company, the cash won’t be spent all at go. For instance, the board granted the prior in 2018 and was for roughly $10 billion. By March 31, there was only $1.4 billion left under that authorization.
The new authorization kicks in on August 1 2022. Investors don’t seem to be too interested in the minute details of the authorization; their focus is mainly on the return of capital. As far as that goes, Caterpillar already has a great history of balancing dividends and share repurchases.
Within the previous 10 years alone, Caterpillar has spent roughly $20.8 billion repurchasing stock and roughly $18.7 billion on dividends. That $39.5 billion compared with roughly $37.3 billion in free cash flow generated within the same time span. (Caterpillar has issued around $2.1 billion in stock and $4.4 billion in net debt over that same time span).
The pace of buybacks for the 2018 authorization has added to roughly $900 million a quarter, and this excludes the pandemic-related pause. Dividends add up to roughly $600 million a quarter. The $1.5 billion can be compared to Wall Street’s projected free cash flow of roughly $1.6 billion, clear evidence that CAT management is ready to uphold its commitment of returning cash to shareholders.
Caterpillar shares climbed 1.9% in midday trading on Tuesday, representing a good day for markets thus far. The S&P 500 and Dow Jones Industrial Average (ticker: DJIA) gained 1.1% and 0.6%, respectively.
This year alone, CAT stock is up roughly 2%. Despite the fact that inflation has negatively affected most stocks, it seems to have been beneficial to CAT- Many of the company’s customers produce things that are rising in price, thus creating demand for Caterpillar’s goods and services.