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Shareholders Of Caterpillar Must Be Happy With Their 167% Total Return

Original source: Yahoo Finance

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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Caterpillar Inc. (NYSE:CAT) shareholders would be well aware of this, since the stock is up 131% in five years. Also pleasing for shareholders was the 20% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 9.6% in 90 days).


While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.


Over half a decade, Caterpillar managed to grow its earnings per share at 3.7% a year. This EPS growth is slower than the share price growth of 18% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.


It is of course excellent to see how Caterpillar has grown profits over the years, but the future is more important for shareholders. This free interactive report on Caterpillar's balance sheet strength is a great place to start, if you want to investigate the stock further.


What About Dividends?


As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Caterpillar the TSR over the last 5 years was 167%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!


A Different Perspective


It's nice to see that Caterpillar shareholders have received a total shareholder return of 28% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 22%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important.



... GO TO Shareholders Of Caterpillar Must Be Happy With Their 167% Total Return TO READ MORE

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