2 Juggernaut Dividend Stocks to Buy With $500

Key Points

• Caterpillar carved out a sound economic moat.

• Ford's dividend sports a robust yield over 5%.

• Ford has earnings upside as it reverses steep electric vehicle losses.

• 10 stocks we like better than Ford Motor Company ›

Dividend stocks are a wonderful option to invest in. They can provide a steady income stream, drive compounding returns, and offer more portfolio stability. Generally this investing strategy focuses on larger and more financially stable companies that return immense value to shareholders through dividends and sometimes share repurchases. If you have a little disposable cash and are browsing for some dividend stock ideas, here are two solid options for different reasons.

Durable competitive edge

With the books closed on 2024, Caterpillar (NYSE: CAT) boasted sales and revenues near $65 billion, making it the world's leading manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, diesel-electric locomotives, and industrial gas turbines.

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There are two primary things for investors to note about Caterpillar's long-term competitive advantages. First, the company has substantial intellectual property, a long list of patents across various engine technologies, and very real customer switching costs. Caterpillar has proven to provide customers with high-quality products at the lowest total cost of ownership, supporting its premium pricing strategy. Second, just as important as its product quality, or perhaps more so, is its distribution and service through its network of nearly 160 independent dealers with nearly 2,800 global locations.

While Caterpillar remains a cyclical company, management has worked diligently improve margins and cash flow as well as return substantial cash to shareholders through share repurchases and a consistently increasing dividend.

CAT Dividend data by YCharts

Caterpillar's dividend yield of roughly 1.3% won't jump off the page, but the company's core business, improving margins, and cash flow will set investors up to have a long-term increasing dividend. Caterpillar can certainly be a cornerstone stable business for just about any portfolio.

Upside remains

Right now the automotive industry is evolving from internal combustion engine vehicles to full-electric and hybrids. But the inconvenient truth right now is electric vehicles (EVs) just aren't profitable for the vast majority of automakers. That's primarily because scale and mass adoption has yet to be reached.

Consider that Ford Motor Company's (NYSE: F) Model e division, responsible for its EVs, lost a substantial $5.1 billion in 2024 alone, and that loss is expected to be similar in 2025. The good news is Ford is adjusting its approach and transformed its traditional assembly line into an "assembly tree," which has three subassemblies running their lines simultaneously before joining together. Ford expects a net 15% gain in production speed at its Louisville assembly plant, compared to vehicles currently being manufactured.

Image source: Ford Motor Company.

In terms of bringing down costs and improving scale, Ford is introducing a universal EV platform that will reduce parts by 20%, with 25% fewer fasteners and 40% fewer workstations. The new platform will underpin as many as eight EV models with the first being an electric pickup truck in 2027. The best part is management expects this EV truck to be profitable early in its life cycle, which would be a good first step toward reversing massive EV division losses.

While investors wait for Ford to reverse its Model e losses, the company dishes out a robust dividend yield of 5% and often pays an annual supplemental dividend when cash flow is aplenty.

What it all means

Caterpillar and Ford both offer dividends, but are very different as investments. On the one hand, Caterpillar's proven durable competitive advantages keep it ahead of the competition and support healthy margins. On the other hand, Ford doesn't have an economic moat in the brutally competitive automotive industry, but will offer you a much larger dividend yield to make up for it. For investors, either of these two dividend stocks are worthy of consideration.

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Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.