What are we looking for?
Sustainable dividends set to accelerate on rising demand for electric cars.
Until Volvo revealed plans to go "electric," Tesla was sucking all of the oxygen out of the auto industry. The rollout of its $35,000 (U.S.) Model 3 sedan is the latest headline grabber. Still, for Tesla to justify its whopping $51.9-billion market cap, it must prove it can make enough vehicles, including the half-a-million it forecasts for 2018. That challenge will likely keep the stock volatile – and dividend-less.
We think it's far better for investors to buy auto stocks that produce a full range of conventional vehicles or supply the parts for them. The best also meet demand for advanced driver-assistance systems and lightweight components. Of those, we pinpointed auto makers making big strides in electric cars. They're prepared to boost production when it's profitable.
We then applied our TSI Dividend Sustainability Rating System to that list. The system awards points to a stock based on key factors:
• One point for five years of continuous dividend payments – two points for more than five;
• Two points if it has raised the payment in the past five years;
• One point for management's commitment to dividends;
• One point for operating in non-cyclical industries;
• One point for limited exposure to foreign currency rates and freedom from political interference;
• Two points for a strong balance sheet, including manageable debt and adequate cash;
• Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
• One point if the company is a leader in its industry.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. TSI Dividend Advisor is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six auto-industry stocks that will continue to prosper – and maintain their payouts. Ford Motor and Japan's Toyota, Honda and Nissan are global giants already making electric cars. Higher R&D spending by auto-parts leaders Linamar and Magna will allow them to prosper from the manufacture of both internal-combustion and electric vehicles.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
Auto makers that may benefit from the electric car revolution
|Ranking*||Company||Ticker||Market Cap ($Bil)**||Dividend Yield||Points||Dividend Sustainability Rating|
|1||Ford Motor Co.||F-N||45.3||5.2||8||Above-average|
|2||Toyota Motor Corp.||TM-N||179.1||3.6||8||Above-average|
|3||Nissan Motor Co.||NSANY-OTC||43.9||4.2||8||Above-average|
|4||Honda Motor Co.||HMC-N||49.9||3.1||8||Above-average|
|5||Magna International Inc.||MG-T||23.5||2.5||7||Above-average|
Source: Dividend Advisor; *Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.**Market cap is in native currency.