With shares of both General Motors (NYSE: GM) and Ford (NYSE: F) trending sharply lower in the last quarter, income investors cannot ignore the rich dividend yield offered from the stock.
Which auto firm is more suitable for a dividend growth investor who does not want to hold a falling stock?
Ford topped $12 in June before falling steadily and closing at a new low last week. At 6.9% the dividend yield sounds too good to be true. This is coupled with a debt/equity of four times and a P/E of 5.4 times.
The financial metrics scream “discount” but investors face paper losses if the stock keeps falling. On Oct 5, the company reported Y/Y sales falling 43% to 64,383 vehicles. Ford needs to demonstrate sales strength in regions outside of North America. Otherwise, the trade war fears will prove true; investors could expect even slower sales.
GM’s stock, which closed at a fresh yearly low last week. Fundamentally, things have never been brighter. Consumer Reports wrote that Cadillac had a better Autopilot than Tesla (NASDAQ: TSLA).
GM said on Oct 3 that Honda and Softbank both invested in GM’s ADAS unit. This values the unit at ~ $15 billion. In other words, GM is becoming a tech company for cars but trades like an old car company.
With GM’s potential in growth in tech in autos, its stock is more attractive at this time than with Ford.
Disclosure: Author owns shares of Ford.
