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Should You Buy These Auto Stocks on Dividend Hike Declarations?
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Last year, the coronavirus outbreak wrecked the auto industry, with suspension of production, forced leaves/layoffs and cost cutting being commonplace. To preserve cash and maintain ample liquidity, various auto biggies including General Motors (GM - Free Report) and Ford (F - Free Report) were forced to slash dividends as well as suspend stock buybacks.
While the COVID-19 pandemic is still far from gone, the world seems to be better equipped to handle the same. Steady reopening of economic activities has aided the Auto sector to recover from last year’s turmoil. Pent-up demand for SUVs, preference for personal mobility, easier credit terms, and gradual economic recovery — thanks to the stepped-up vaccination drive as well as massive fiscal stimulus — resulted in strong sales of vehicles in first-half 2021. Notwithstanding the global chip crunch, auto firms have managed to generate higher year-over-year revenues and cash flow from operations, which have strengthened their financials. Encouragingly, many auto firms are resorting to shareholder-friendly activities like hiking dividend payouts or increasing buyback authorization.
Below we have highlighted five stocks in the auto space that have recently hiked their respective dividends, thereby highlighting their commitment toward enhancing shareholders’ value with strong cash-generation capabilities. But do these stocks also make attractive investment choices? Read on to know more.
Payout Hikes Galore
Last month, Cummins Inc. (CMI - Free Report) raised its payout to $1.45 per share from $1.35, marking an annual increase in dividend for the 12th consecutive year. The dividend is payable on Sep 2, 2021, to shareholders of record as of Aug 20. As a matter of fact, the engine maker returned $1.48 billion to shareholders via dividends and buybacks in first-half 2021, in line with its target of returning 75% operating cash flow to investors in 2021.
About a month back, Penske Automotive (PAG - Free Report) also raised dividend by 2.3% to 45 cents per share. The dividend will be paid out on Sep 1, 2021 to shareholders of record as of Aug 10. So far in 2021, the auto retailer has hiked quarterly dividend thrice.
On Aug 12, Lear Corp. (LEA - Free Report) doubled quarterly cash dividend from 25 cents a share to 50 cents. The dividend will be paid out on Sep 21, 2021, to shareholders of record as of Sep 2. The move indicates the auto parts supplier’s commitment to deliver long-term shareholder value, and reflects its stable financial position and ability to generate sufficient cash flows.
On Aug 17, Group 1 Automotive (GPI - Free Report) announced a 3% hike in quarterly cash dividend. The company will pay 34 cents per share on Sep 15, 2021 to shareholders on record as of Sep 1. It must be noted that the auto retailer has been increasing dividend every quarter after it resumed dividend payments last November on the back of a gradual recovery of the business from the repercussions of the pandemic.
On Aug 18, Winnebago Industries (WGO - Free Report) increased quarterly cash dividend by 50% to 18 cents per share. The dividend will be paid out on Sep 29, 2021 to common stockholders of record as of Sep 15. With this announcement, the recreational vehicle (RV) maker has paid quarterly cash dividend to common stockholders of record for the last 29 quarters.
Are the Stocks Worth Betting On?
Cummins: Cummins’ efforts and investments to ramp up its capabilities in fuel cell and hydrogen production technology offer ample growth visibility. While the firm’s balance sheet strength and investor-friendly moves bode well, it is suffering from rising capex as well as high launch and operating costs, which are likely to mar margins going forward. Cummins also acknowledges that the global microchip deficit is posing challenges for the firm and expects supply chain constraints to persist through 2021-end. As such, investors are advised to wait for a better entry point. The company currently carries a Zacks Rank #3 (Hold).
Penske: The acquisition of Warner Truck Centers is boosting Penske’s top line. The buyout of Kansas City Freightliner is set to fuel Penske's prospects further. The Penske Transportation Solutions (PTS) joint venture has also been boosting prospects of Penske Automotive — which holds 28.9% in PTS. The acquisition of Black Horse Carriers — completed early this year — is expected to add at least $600 million in revenues for PTS in 2021. CarShop expansion will further fuel top-line growth of the firm. Penske does not appear expensive at the current price levels and has solid upside potential. Thus, investors should hit the ‘Buy’ button on the stock. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lear: Xevo and M&N Plastics buyouts along with the development of innovative products including ConfigurE+ and INTU thermal comfort technology are driving the firm. The company’s consolidated three-year (2021-2023) sales backlog of $2.8 billion and strong financials are praiseworthy. Yet, increased capital spending, supply chain disruptions and rising commodity prices are major headwinds for Lear. For the second half of 2021, Lear expects significant headwinds from higher steel prices. In view of these headwinds, it has trimmed 2021 forecasts, which dampened investors’ confidence. While the stock may appear undervalued at the current price levels, it still warrants a cautious stance at the moment. Lear currently carries a Zacks Rank #3.
Group 1: Group 1's diversified product mix and multiple streams of income position it well for top- and bottom-line growth. The company expects continued sequential growth throughout second-half 2021 in the United States and United Kingdom. Group 1’s omnichannel efforts to boost sales and digital efforts focused on the online customer scheduling-appointment system are also enhancing customer experience. Continued focus on operational discipline is likely to aid margins. In the last reported quarter, adjusted SG&A as a percentage of gross profit was 56%, down from 70% in the pre-pandemic second-quarter 2019. Also, Group 1 currently seems undervalued than the industry. In view of the tailwinds, it will be prudent for investors to grab the Zacks Rank #1 stock now.
Winnebago: Buyouts including Grand Design and Chris-Craft have bolstered Winnebago's footprint in the outdoor lifestyle market. The Newmar buyout has further boosted the firm's portfolio, adding high-end motorized products to the existing Winnebago brand line-up. The company's increasing free cash flow and strengthening balance sheet enable it to consistently enhance shareholder value. Further, Winnebago’s record backlog of new orders across both the segments offers good visibility into growth through fiscal 2021. Also, the stock is currently trading at a discount compared to the industry. As such, it would be wise to tap the booming RV industry with Winnebago, which presently carries a Zacks Rank #2 (Buy).
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Should You Buy These Auto Stocks on Dividend Hike Declarations?
Last year, the coronavirus outbreak wrecked the auto industry, with suspension of production, forced leaves/layoffs and cost cutting being commonplace. To preserve cash and maintain ample liquidity, various auto biggies including General Motors (GM - Free Report) and Ford (F - Free Report) were forced to slash dividends as well as suspend stock buybacks.
While the COVID-19 pandemic is still far from gone, the world seems to be better equipped to handle the same. Steady reopening of economic activities has aided the Auto sector to recover from last year’s turmoil. Pent-up demand for SUVs, preference for personal mobility, easier credit terms, and gradual economic recovery — thanks to the stepped-up vaccination drive as well as massive fiscal stimulus — resulted in strong sales of vehicles in first-half 2021. Notwithstanding the global chip crunch, auto firms have managed to generate higher year-over-year revenues and cash flow from operations, which have strengthened their financials. Encouragingly, many auto firms are resorting to shareholder-friendly activities like hiking dividend payouts or increasing buyback authorization.
Below we have highlighted five stocks in the auto space that have recently hiked their respective dividends, thereby highlighting their commitment toward enhancing shareholders’ value with strong cash-generation capabilities. But do these stocks also make attractive investment choices? Read on to know more.
Payout Hikes Galore
Last month, Cummins Inc. (CMI - Free Report) raised its payout to $1.45 per share from $1.35, marking an annual increase in dividend for the 12th consecutive year. The dividend is payable on Sep 2, 2021, to shareholders of record as of Aug 20. As a matter of fact, the engine maker returned $1.48 billion to shareholders via dividends and buybacks in first-half 2021, in line with its target of returning 75% operating cash flow to investors in 2021.
About a month back, Penske Automotive (PAG - Free Report) also raised dividend by 2.3% to 45 cents per share. The dividend will be paid out on Sep 1, 2021 to shareholders of record as of Aug 10. So far in 2021, the auto retailer has hiked quarterly dividend thrice.
On Aug 12, Lear Corp. (LEA - Free Report) doubled quarterly cash dividend from 25 cents a share to 50 cents. The dividend will be paid out on Sep 21, 2021, to shareholders of record as of Sep 2. The move indicates the auto parts supplier’s commitment to deliver long-term shareholder value, and reflects its stable financial position and ability to generate sufficient cash flows.
On Aug 17, Group 1 Automotive (GPI - Free Report) announced a 3% hike in quarterly cash dividend. The company will pay 34 cents per share on Sep 15, 2021 to shareholders on record as of Sep 1. It must be noted that the auto retailer has been increasing dividend every quarter after it resumed dividend payments last November on the back of a gradual recovery of the business from the repercussions of the pandemic.
On Aug 18, Winnebago Industries (WGO - Free Report) increased quarterly cash dividend by 50% to 18 cents per share. The dividend will be paid out on Sep 29, 2021 to common stockholders of record as of Sep 15. With this announcement, the recreational vehicle (RV) maker has paid quarterly cash dividend to common stockholders of record for the last 29 quarters.
Are the Stocks Worth Betting On?
Cummins: Cummins’ efforts and investments to ramp up its capabilities in fuel cell and hydrogen production technology offer ample growth visibility. While the firm’s balance sheet strength and investor-friendly moves bode well, it is suffering from rising capex as well as high launch and operating costs, which are likely to mar margins going forward. Cummins also acknowledges that the global microchip deficit is posing challenges for the firm and expects supply chain constraints to persist through 2021-end. As such, investors are advised to wait for a better entry point. The company currently carries a Zacks Rank #3 (Hold).
Penske: The acquisition of Warner Truck Centers is boosting Penske’s top line. The buyout of Kansas City Freightliner is set to fuel Penske's prospects further. The Penske Transportation Solutions (PTS) joint venture has also been boosting prospects of Penske Automotive — which holds 28.9% in PTS. The acquisition of Black Horse Carriers — completed early this year — is expected to add at least $600 million in revenues for PTS in 2021. CarShop expansion will further fuel top-line growth of the firm. Penske does not appear expensive at the current price levels and has solid upside potential. Thus, investors should hit the ‘Buy’ button on the stock. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lear: Xevo and M&N Plastics buyouts along with the development of innovative products including ConfigurE+ and INTU thermal comfort technology are driving the firm. The company’s consolidated three-year (2021-2023) sales backlog of $2.8 billion and strong financials are praiseworthy. Yet, increased capital spending, supply chain disruptions and rising commodity prices are major headwinds for Lear. For the second half of 2021, Lear expects significant headwinds from higher steel prices. In view of these headwinds, it has trimmed 2021 forecasts, which dampened investors’ confidence. While the stock may appear undervalued at the current price levels, it still warrants a cautious stance at the moment. Lear currently carries a Zacks Rank #3.
Group 1: Group 1's diversified product mix and multiple streams of income position it well for top- and bottom-line growth. The company expects continued sequential growth throughout second-half 2021 in the United States and United Kingdom. Group 1’s omnichannel efforts to boost sales and digital efforts focused on the online customer scheduling-appointment system are also enhancing customer experience. Continued focus on operational discipline is likely to aid margins. In the last reported quarter, adjusted SG&A as a percentage of gross profit was 56%, down from 70% in the pre-pandemic second-quarter 2019. Also, Group 1 currently seems undervalued than the industry. In view of the tailwinds, it will be prudent for investors to grab the Zacks Rank #1 stock now.
Winnebago: Buyouts including Grand Design and Chris-Craft have bolstered Winnebago's footprint in the outdoor lifestyle market. The Newmar buyout has further boosted the firm's portfolio, adding high-end motorized products to the existing Winnebago brand line-up. The company's increasing free cash flow and strengthening balance sheet enable it to consistently enhance shareholder value. Further, Winnebago’s record backlog of new orders across both the segments offers good visibility into growth through fiscal 2021. Also, the stock is currently trading at a discount compared to the industry. As such, it would be wise to tap the booming RV industry with Winnebago, which presently carries a Zacks Rank #2 (Buy).