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Dividend.com: Year of the CAT

Tom Reese and Paul Rubillo

Caterpillar(CAT Quote) has been a big beneficiary of Asia's recent build-out. The company delivered a solid second-quarter earnings report, and also increased its guidance.

CAT reported that machinery sales ramped up 50% during the quarter. Management sees higher steel and commodity prices as still a main concern for the company going forward. The company is working with suppliers to reduce those material costs. Plans are in place to raise prices 5% to 7% worldwide, effective January 2009.

Earnings for the year are expected to be $6 per share, with revenue of $50 billion. That's above earlier estimates for profit of $5.64 to $6.18 per share on revenue of $47.2 billion to $49.5 billion.

Caterpillar has a 1.97% dividend yield, based on last night's closing price of $73.23. We think these shares are fairly attractive, but do not have them on the recommended list. Our concern is that the global economic slowdown may finally catch up to CAT in the next few quarters. We'll be keeping tabs on CAT's news, and will let you know if we issue an upgrade. American Express a Mess

American Express(AXP Quote)) delivered much worse-than-expected numbers last night. The company's 38% drop in second-quarter earnings would've been bad enough, but then management essentially pulled guidance for the rest of the year.

One of our concerns about AXP that we mentioned in a previous article was the newest client exposure it was pursuing. In a way to gain market share, the company approved new clients who were not necessarily credit-worthy in their system. This poorly-timed strategy is now costing the company, which has set aside $600 million to cover bad loans.

Management also indicated the company would be cutting jobs and taking other measures to reduce costs. Unfortunately, management provided no specific numbers regarding these measures which makes us think the company may have been blindsided by the severity of its poor earnings results.

We did not like AXP's prospects going into its report, and these negative results have worsened our outlook. Investors should instead look at companies like MasterCard(MA Quote), if it can come down to the $225-$240 level. We feel MasterCard would give dividend investors safer exposure to any uptick in consumer spending.

American Express pays a dividend of 1.76%, based on last night's closing stock price of $40.90. American Express (AXP) is not recommended at this time, holding a Dividend.com Rating of 2.9 out of 5 stars. CME Group: Ready for a Sustained Bounce?

Chicago Merc(CME Quote) missed on EPS, but revenue of $563 million did match what analysts had expected. The company operates the world's largest derivatives exchange.

Trading in interest rate contracts slipped for CME last quarter, as traders shifted their focus to foreign exchange and commodities product lines. The highlight from the earnings call was the overall increase in operating margins from 59% to 62%, year over year.

For investors, CME Group is becoming an interesting play. We feel traders may come in and run the stock up a bit, but for long-term investors, a sustained stay above the recent $300 level is key. The risk/reward is getting better, as the stock is more than 50% off its 52-week high. We anticipate upgrading the stock if recent lows hold.

CME Group currently sports a 1.41% dividend yield, based on last night's close of $325.53. Texas Instruments: June Swoon

Texas Instruments(TXN Quote) disappointed investors and analysts with its second-quarter earnings report. Management reported that revenue fell as demand "slowed unexpectedly." The reason cited was an inventory cut by distributors, who did not replenish their orders before the quarter ended.

For the next quarter, management expects revenue in the area of $3.26 billion to $3.54 billion, with earnings per share estimated to come in between 41 cents and 47 cents. Both are on the low end of what analysts expected.

This lowish guidance may drive chip investors over to Intel(INTC Quote), which reported a better number in its most recent earnings report. However, we are not fans of either of these stocks at the moment, and we're very cautious about the tech sector in general. Based on the recent reports to come out of the bigger tech names, we're skeptical of consumer buying power, which is necessary for a sustained technology rebound. We'll keep you posted as to when we think Texas Instruments may become attractive.

Texas Instruments currently pays a dividend yield of 1.40%, based on last night's close of $28.52. Merck Offers No Guidance

Merck(MRK Quote) has pulled the plug on earnings guidance for the rest of the year. The company reported its numbers last night, and management backed off of previous goals that were set, with embattled cholesterol drug Vytorin being a factor in the company's revenue guidance.

The original earnings goals were for double-digit compound annual earnings-per-share growth from 2005 through 2010.

As for Merck's other big-name drugs:

• Singulair, which treats asthma and allergy, should make from $4.4 billion to $4.6 billion, compared with $4.6 billion to $4.8 billion previously.
• Gardasil, which prevents infection with the sexually transmitted virus that causes cervical cancer in girls and women, is projected to hit sales of $1.4 billion and $1.6 billion, down from its prior view of $1.9 billion to $2.1 billion.
• Fosamax, osteoporosis drug fell 48% to $411 million, as generic competition takes a bite. Januvia-newest diabetes drug was solid with sales more than doubling to $334 million.

Due to the Vytorin debacle and the company's earnings nightmare, we have decided to pull Merck off of our "recommended dividend stocks" list. We will monitor the company's progress as we move forward. Investors may want to look at other names in the pharma sector instead.

Be sure to visit our complete recommended list of the Best Dividend Stocks as well as a detailed explanation of our ratings system.