The global semiconductor shortage and supply chain crisis exacerbated by the ongoing Russian-Ukraine war have wreaked havoc on the auto manufacturing industry. However, massive government and private investments to boost semiconductor production should gradually ease the problem and help auto manufacturers reinitiate operations.
Moreover, the rising demand for electric vehicles due to rising oil prices and climate change concerns should drive the industry’s growth. Also, traditional automakers might benefit more because of their broad portfolio of cars and market dominance. According to a report by Market Research Future, the automotive industry is expected to grow at a CAGR of 4.5% by 2028.
Given this backdrop, it could be wise to invest in dividend-paying auto manufacturing stocks Honda Motor Co., Ltd. (HMC) and Stellantis N.V. (STLA) to generate a steady income stream. In addition, they look undervalued at their current price levels, considering their solid growth prospects based on continued innovations.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life creation and Other Businesses.
On April 5, 2022, HMC and General Motors (GM) announced plans to expand their relationship to a new chapter by co-developing a series of affordable electric vehicles based on a new global architecture using next-generation Ultium battery technology. Toshihiro Mibe, HMC’s president & CEO, said, “Honda and GM will build on our successful technology collaboration to help achieve a dramatic expansion in the sales of electric vehicles.”
HMC’s dividend payouts have grown by a 3.1% CAGR over the past five years. While its four-year average dividend yield is 3.3%, its current dividend translates to an 8.3% yield.
HMC’s revenues increased 10.5% year-over-year to 14,552.60 billion yen ($108.05 billion) for the fiscal year ended March 31, 2022. The company’s operating profit grew 32% year-over-year to 871.20 billion yen ($6.47 billion). Also, its profit came in at 707 billion yen ($5.25 billion), up 7.6% year-over-year.
In terms of forward P/CF, HMC’s 2.33x is 72.1% lower than the industry average of 8.33x. The stock’s forward EV/S of 0.61x is 41.4% lower than the industry average of 1.04x.
For fiscal 2024, analysts expect HMC’s EPS to come in at $4.15, representing a 47.6% year-over-year increase. Its revenue is expected to rise 361.4% year-over-year to $123.24 billion in fiscal 2023.
HMC’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value and a B grade for Stability and Quality. Within the Auto & Vehicle Manufacturers industry, HMC is ranked #1 out of 65 stocks. To see the additional POWR Ratings for HMC (Momentum, Growth, and Sentiment), click here.
Stellantis N.V. (STLA)
Based in Hoofddorp, the Netherlands, STLA engages in the design, engineering, manufacturing, distribution, and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide. It sells its products directly, as well as through distributors and dealers.
On May 30, 2022, STLA and Toyota Motor Europe N.V. announced the expansion of their existing partnership with an agreement for a new large-size commercial van. Carlos Tavares, STLA’s CEO, said, “This agreement strengthens our leadership in the EU30 for LCVs and low emission vehicles and moves us a step closer to realizing our Dare Forward 2030 goal of becoming the undisputed global light commercial vehicle leader, in terms of technology, manufacturing, market share and profitability.”
STLA’s dividend payouts have grown by a 17.3% CAGR over the past three years. While its four-year average dividend yield is 9.3%, its current dividend translates to an 8.7% yield.
STLA’s net revenues increased 14% year-over-year to €152.12 billion ($162.78 billion) for the fiscal year ended December 31, 2021. The company’s adjusted operating income grew 95% year-over-year to €18.01 billion ($19.27 billion). Also, its net profit came in at €13.35 billion ($14.29 billion), up 179% year-over-year.
In terms of forward EV/EBITDA, STLA’s 0.91x is 88.7% lower than the industry average of 8.05x. The stock’s forward non-GAAP P/E of 2.69x is 76% lower than the industry average of 11.22x.
STLA’s revenue is expected to increase 14.6% year-over-year to $43.66 billion for the quarter ending September 30, 2022.
STLA’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to Buy in our proprietary ratings system. It has an A grade for Value and a B grade for Stability and Sentiment. Click here to see the additional POWR Ratings for STLA (Growth, Momentum, and Quality). STLA is ranked #5 in the same industry.
HMC shares were trading at $24.81 per share on Wednesday afternoon, up $0.34 (+1.39%). Year-to-date, HMC has declined -11.56%, versus a -20.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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