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What Should You Do With Your Caterpillar Shares?


Caterpillar is facing weak demand.

Revenues and earnings continue to decline.

Dividend remains safe for the foreseeable future.

Dividend growth and capital appreciation are less likely.

Caterpillar (NYSE:CAT) has been hit hard by low prices for most basic materials and resources, which led to lower buying activity from mining companies and pressured Caterpillar's sales. The company's shares are up substantially over the last weeks nevertheless. I'll try to examine what could be the best move for Caterpillar's shareholders.

Over the last years Caterpillar has seen steadily sinking sales numbers, which not only pressures the company's top line, but also its bottom line:

From the highs seen in 2012 Caterpillar's revenues have declined 30% to $47 billion, the company's operating and net income have declined by an even steeper 64% and 62% over the same time (to $3.3 billion and $2.1 billion, respectively). The reason is relatively easily found, Caterpillar's retail sales have dropped continuously since then:

Since the end of 2012 Caterpillar has not seen one single month of positive retail sales growth, the decline rate has averaged about 10% since, and recently has dropped even lower (reaching a 21% decline in February). This obviously is not good for Caterpillar at all, since lower retail sales lead to declining revenues and net income, as we have seen over the last years.

Caterpillar's cash flows have been more resilient than its earnings, with operating cash flows still coming in at $6.7 billion for the last year and free cash flows still totaling $3.4 billion for the same time (a...