Select a publicly traded company that pays dividends.

• Determine the most recent stock price and the total dividends paid over the past year.
• Calculate the current dividend yield on the stock.
• Calculate the required rate of return (K_e) for an investment in the common stock. You should use formula 10-9 in the textbook to do this calculation and use an assumed growth rate of 5%.
• Identify the current P/E ratio for the company from a source such as Yahoo! Finance or Barrons.
• Show your calculations of the dividend yield and required rate of return (K_e), and present the P/E ratio.
• Explain the relationship between your chosen companys K_e and P/E ratio and what that relationship indicates about the risk of the companys future cash flows.
• Explain whether the general relationship between a high K_e and a low P/E ratio (or low K_e and high P/E ratio) is supported by the data for your chosen publicly traded company.
• Predict the impact on the companys stock price based on your forecast that the company will grow its dividends by a rate higher than 5%.
• Compare your companys P/E ratio with the P/E ratios of two other companies in its industry.
• Hypothesize which company in this industry should have the lowest K_e based on the P/E comparisons.
• Summarize the connection between a companys growth rate, its required rate of return, and its value (stock price).

• Consecutive annual dividend increases: 27

Caterpillar (CAT), the world's largest maker of heavy construction and mining equipment, was added to the Dividend Aristocrats in January 2019.

CAT has paid a regular dividend without fail since 1933, and has lifted its payout every year for 27 years. Most recently, the company raised the dividend in June 2021, by 8% to $1.11 quarterly.

The best dividend stocks have ample free cash flow to cover the dividend, and CAT checks that box easily. For the 12 months ended Dec. 31, 2020, CAT had free cash flow after debt payments of $1.97 billion after disbursing $2.2 billion in dividends.