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(Adds details from investor day presentations, updates share price)
CLAYTON, N.C., May 2 (Reuters) - Caterpillar Inc on Thursday provided investors with details on its push to grow its services business while also laying out dividend increases and more consistent share repurchases in the coming years.
The heavy machinery maker is looking to smooth volatility in its earnings by selling more parts and services, and said it intends to grow services revenue to $28 billion by 2026, up from $18 billion in 2018 and double what it was in 2016.
Deerfield, Illinois-based Caterpillar's main customers are in businesses like mining and construction, which are prone to wide swings with the business cycle.
"Services will help dampen the impact of cycles, but we will never be immune from the cycle, Chief Executive Jim Umpleby said at an investor meeting at a Caterpillar equipment factory in Clayton, North Carolina.
Last week the company said about 850,000 of its machines are connected to the cloud, which it sees as a way to sell services to customers. That should grow to 1 million machines by year end, Bob De Lange, group president of services, distribution and digital, said on Thursday.
New Caterpillar machines are dotted with sensors that allow close monitoring and can warn when parts are about to fail.
Caterpillar makes most of its service income from selling spare parts, according to industry analysts. New digital offerings, such as monitoring services that help track the health of machines, are a small but growing revenue source.
Umpleby said the company's network of dealers, which it relies on to deliver and service machines, are participating in the services push and will also see added profits, though he declined to elaborate on that split. He emphasized, however, that the added revenue target for 2026 is for Caterpillar only.
The services business, spread across the company's construction, resource and energy & transportation units, contributed about 33 percent to Caterpillar's $54.7 billion revenue in 2018.
The company announced it will pay a dividend of $1.03 per share, up 20 percent from its previous payout, on Aug. 20 to shareholders at the close of business on July 22. It is targeting at least high single-digit dividend increases in each of the next four years and plans to buy back shares more consistently.
Last week, Caterpillar had spooked investors when it reported first-quarter results that showed rising costs hitting margins in its construction equipment business and weak sales in the Asia-Pacific region linked to slow growth in China.
Chief Financial Officer Andrew Bonfield said on Thursday that tariffs would cost the company $250 million to $350 million in 2019 if there was no relief.
Still, he said Caterpillar is "cautiously optimistic" there will be a resolution of the trade dispute with China.
Caterpillar has raised prices to offset some of the higher costs and pushed efficiency moves at its far-flung network of factories.
The company now has a target for adjusted operating margins of 3 to 6 percentage points above historical performance from 2010 to 2016.
Caterpillar shares ended down 2.2 percent on Thursday. (Reporting by Rachit Vats in Bengaluru and Timothy Aeppel in New York; Writing by Meredith Mazzilli; Editing by Saumyadeb Chakrabarty, Shinjini Ganguli and Jonathan Oatis)