Daimler: Discounted Auto Stock With A 5% Dividend Yield

When income investors think of auto stocks, they typically think of the U.S.-based giants Ford Motor (F) and General Motors (GM). Both stocks have high dividend yields above 4%.General Motors is Warren Buffett’s 2nd highest yielding stock.

But there are auto manufacturers outside the U.S., that are just as attractive from a dividend perspective.

One of them is Daimler AG (DDAIF), which sports a 5% dividend yield.

Daimler’s dividend yield is above its peer group because investors are worried about economic conditions in Europe. The European economy was already on shaky ground heading into 2016, and the summer Brexit vote only added to the uncertainty.

As a result, Daimler shares have dropped 12% since the beginning of 2016.

While Daimler faces a unique set of geopolitical risk, it also offers above-average return potential. The stock is very cheap, with a high dividend yield, and the company itself is performing well.

This article will discuss Daimler and its merits as a dividend investment.

Business Overview

Daimler is a major auto maker, based in Germany. The company operates in six core segments:

  • Daimler Group (49% of sales)
  • Mercedes-Benz Cars (30% of sales)
  • Daimler Trucks (10% of sales)
  • Mercedes-Benz Vans (4% of sales)
  • Daimler Buses (1% of sales)
  • Daimler Financial Services (6% of sales)

The stock has declined throughout 2016, but the underlying company fundamentals remain sound.

In 2015, net profit increased 21% from the previous year. This compelled the company to raise its dividend by 33%.

The strong results have continued into 2016. The third quarter was particularly strong.

DDAIF Third Quarter

Source: December 2016 Investor Presentation, page 3

The best-performing segments last quarter were Mercedes-Benz cars and Mercedes-Benz vans, which grew revenue by 12% and 13%, respectively.

This growth is more than offsetting weakness in trucks and buses, which is expected to continue for the full year.

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Craig Richards 3 years ago Member's comment

$GM and $F are going to suffer huge losses if #Trump continues to take #China on as an adversary! Let's not forget #Mexico either!