Want More Passive Income? Give This Dividend King a Try

Japan-based auto company Honda Motor Co., Ltd. (HMC) recently announced the set-up of a new joint venture battery plant with LG Energy Solution in Fayette County, Ohio. The two companies will invest $3.50 billion and aim to create 2,200 jobs. This investment is expected to generate lucrative benefits for both companies.

Moreover, HMC surpassed consensus revenue estimates by 4.6% in its latest reported quarter ended September 30, 2022.

In addition, despite market headwinds, HMC is paying a hefty dividend on its shares. HMC’s dividend payouts have increased at a 7.1% CAGR over the past three years. Its current dividend yield is 7.47%, while its four-year average yield is 3.38%.

HMC has lost 16.7% year-to-date and 16.3% over the past year to close the last trading session at $23.90. However, it has gained marginally over the past month.

Here is what could shape HMC’s performance in the near term:

Stable Auto Demand Despite Macro Headwinds

Despite rampant macro headwinds, auto demand in the U.S. remains stable. Cox Automotive expects around a 10% year-over-year new-vehicle sales growth in November 2022.

Furthermore, Senior Economist Charlie Chesbrough said, “The improving supply situation is something dealers and consumers alike are thankful for this year.”

Such an optimistic outlook around the auto sector might bode well for HMC.

Solid Financials

HMC’s sales revenue came in at ¥4.26 trillion ($31 billion) for the quarter that ended September 30, 2022, up 25% year-over-year. Its operating profit came in at ¥231.20 billion ($1.69 billion), up 16.2% year-over-year. Moreover, its profit came in at ¥189.20 billion ($1.39 billion), up 13.6% year-over-year.

Attractive Valuations

HMC’s forward EV/Sales of 0.57x is 47.9% lower than the industry average of 1.10x. Its forward EV/EBITDA of 7.03x is 23.2% lower than the industry average of 9.15x. Also, its forward Price/Sales of 0.32x is 62.5% lower than the industry average of 0.84x, while its forward Price/Cash Flow of 2.37x is 77.9% lower than the industry average of 10.73x.

POWR Ratings Reflect Promising Outlook

HMC has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HMC has an A grade for Value, in sync with its lower-than-industry valuation multiples.

It has a B grade for Stability, consistent with its beta of 0.78.

In the 62-stock Auto & Vehicle Manufacturers industry, HMC is ranked #5.

Click here for the additional POWR Ratings for HMC (Growth, Momentum, Sentiment, Quality).

View all the top stocks in the Auto & Vehicle Manufacturers industry here.

Bottom Line

HMC’s financials were rock-solid for its latest reported quarter. Moreover, analysts expect its EPS to rise 13.2% per annum for the next five years. Given the stock’s attractive valuations and positive growth outlook, I think this dividend king could be an ideal buy now.

How Does Honda Motor Co., Ltd. (HMC) Stack up Against Its Peers?

While HMC has an overall POWR Rating of A, one might consider looking at its industry peers, Isuzu Motors Limited (ISUZY), Suzuki Motor Corporation (SZKMY), and Subaru Corporation (FUJHY), which also have an overall A (Strong Buy) rating.

HMC shares were trading at $23.81 per share on Wednesday afternoon, up $0.11 (+0.46%). Year-to-date, HMC has declined -13.96%, versus a -16.27% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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