The Dow Jones Industrial Average reached 21,000 last week. This came just over a month since the index hit its monumental 20,000 in January. Watching the market increase to such high levels (so quickly) has been shocking to most investors.
Both the Dow 30 and the S&P 500 indices are up about 6% so far in 2017. The markets have certainly been optimistic during the Trump Administration, although there has been volatility.
The President has a wide agenda of plans, so there are plenty of options for investing in the “Trump Rally.” There are two things that the president continuously promises to make a priority, though. Those are defense and infrastructure. I recently published an article highlighting the best dividend stocks in the defense industry to consider under the Trump Administration. Now, I think it is important to highlight the infrastructure part of the president’s plan. If all goes as planned, stocks in this industry are expected to rally. In fact, he announced this week that he will propose a $1 trillion infrastructure bill to Congress. A bill this large could have a major impact on stocks in the industry.
As investors, choosing the right stocks and industries is essential. However, as dividend investors, choosing the right stocks with solid dividend yields is important, too. Therefore, finding a balance between growth and yield is something every dividend investor needs to figure out.
For investors that are not quite sure which stock in the industry to choose, there’s the iShares S&P Global Infrastructure Index ETF (NYSE: IGF). This exchange-traded fund features both U.S. based and global infrastructure stocks. Like most ETFs, wide diversity is offered, but the dividend yield is usually lower than most dividend stocks (unless you choose a dividend focused ETF). The stocks below are a few considerations for investors interested in infrastructure that offer great dividend yields.
Caterpillar Inc. (NYSE: CAT)
Caterpillar has gotten a lot of attention lately, but it’s not all good news. The stock has been on the upswing since the election, as President Trump has vowed to improve the country’s infrastructure. It hasn’t been all about the road, bridges, and airports for Caterpillar, though. Trump has even said that Caterpillar will be one of the companies to help with the project to build a wall across the Mexican border. Whether this project actually happens (or what people’s opinion of it is), there is still a chance that Caterpillar will be part of a major development, and will profit heavily from it.
Caterpillar’s leadership has already pointed out that these potential profit hikes would not be seen until next year, and it is not counting on them. Still, stock prices are based on future earnings, so investors have made out pretty well for the most part.
The company did experience an unsettling situation last week, which sent shares plummeting. Some of the company’s offices were raided by federal law enforcement. At first, the incident was a mystery, but it was later reported that the raid was related to suspicions by the Internal Revenue Service regarding profits made by a Swiss subsidiary. This raid erased approximately $2.5 billion of the company’s market value in one day. Shares have rebounded slightly, but it was certainly a hit for investors.
In the last year, the company has done a pretty good job meeting expectations for its quarterly earnings. However, in its most recent report, Caterpillar reported that it had lowered its earnings outlook for 2017. If all goes well, and Caterpillar is able to benefit from the President’s infrastructure plan, investors may just have to deal with a sluggish 2017, but an exciting 2018.
There’s plenty of excitement floating around about Caterpillar, but what about its dividend? The stock currently pays a dividend yield of approximately 3.2%, which is excellent compared to its peers in the farm and construction industry, which has an average dividend yield of less than 1%. It has been paying a quarterly dividend of $0.77 since June 2015. The company’s CEO has reported that it is committed to maintaining its dividend, despite a “challenging environment”. Earlier this year, reports of major layoffs were brought up, too. The company plans to eliminate 10,000 jobs over the next three years. Since the company’s management is a bit cautious on 2017, it is likely that dividend investors will have to wait for a dividend boost. At least until profits increase (or Trump’s plan works out, of course).
Caterpillar is currently trading at about 32 times its future earnings estimates. So far in 2017, the stock is up about 4%. In the last twelve months, shares are up over 30%.
Deere & Company (NYSE: DE)
Deere & Co. has also been in the news quite a bit since the finalization of the election. Following the election, President Trump’s ambitious infrastructure plan sent shares upwards. The news of the election was followed by favorable earnings for Deere, allowing the company to end the year on a rally. Investors were also pleased to see that Deere is optimistic on its outlook for 2017.
In its most recent earnings report, which was posted in February, the company reported positive earnings. Although equipment sales have been sluggish, Deere, along with its peers, have seen positivity in agriculture, despite falling prices of the major crops (this includes corn, wheat, and soybean). There is a bit of optimism here, though. Many analysts expect these commodity prices to bottom out this year. If these crops can rebound, Deere’s would have a much easier time increasing profits instead of relying on its other segments.
Like Caterpillar, it is important for investors to remember that the infrastructure and Mexican border wall plans are not guaranteed. The President also mentioned that he would like to select Deere & Company as one of the company’s to work on the wall across the Mexican border. However, no matter how much President Trump wants to make infrastructure stocks (like Deere) great again, investors need to be cautious (or perhaps cautiously optimistic) about potential profits that could results from the plans. In the meantime, Deere has been profiting on its financial services segment as leasing and agriculture have struggled.
On the dividend front, Deere has a great dividend, too. Currently, the company offers a dividend yield of about 2.2%. While this is lower that Caterpillar, it is well above the industry average of 0.95%. Since 2014, Deere has paid a quarterly dividend of $0.60. It has increased its dividend just twelve times since 2004, but has maintained a solid yield for investors. Since 2010, its dividend has increased 110%. It has paid a dividend every year since 1971.
Shares of Deere are currently trading at 23 times its future earnings estimates. In 2017, the stock price has increased about 7%. In the past year, shares have jumped 30%.