It is now the 1st week of the new year. We have decided to buy another dividend stock. I bet you are shocked, being that we are a site about buying stocks. We have decided to add a car manufacturer to our list of stocks. With the price of gas so low, it will make purchasing a new car easier for people. And the average age of cars in the US is 11 years old. This makes the average birth year of about 2004. Therefore, a lot of cars are a lot older than that. This means a lot of cars will need to replaced, which equals more new car sales. Who should we pick as the best car dividend stock?
There are a lot of car companies to pick from. We do not want to buy all of them, so we are going to want to pick the best one for our portfolio. The choices will be limited to USA based companies. We want our passive income in US dollars so we will not have to worry about the exchanged rates or foreign taxes. And since most/all car companies are worldwide, we get worldwide exposure, and they can worry about exchange rates. So, from our list, we will be excluding Toyota (TM), Volkswagen (VLKAY), and Honda (HMC), because they are not US based. And since we are looking for dividends in this portfolio, we will have to exclude Tesla (TSLA). This leaves us with Ford (F) and General Motors (GM) to choose from.
4 Metrics to pick the Best Car Dividend Stock
Dividend Yield: This is a simplest one. We can get the yield from a lot of stock sites. The higher the number, the more they pay you. Currently Ford (F) has a yield of 4.23% and General Motors (GM) is 4.26%. On a $1,000 investment, the difference would be $0.30 per year, making this is a Tie. No winner.
Dividend Revenue Payout Ratio: On top of yield, we want confidence that they can afford to pay. We will take the current dividend payment and divided it by the last 4 quarters of revenue. The dividend revenue payout ratio for Ford (F) is 1.64% and General Motors (GM) is 1.47%. That means General Motors (GM) could raise their dividend by 12% and be the same payout ratio as Ford (F). So the winner here is General Motors (GM).
P/E Ratio: This is a very common metric to compare stocks. P = Share Price and E = Earnings per share. The lower the P/E ratio, the cheaper the stock. Currently Ford (F) P/E ratio of 11.8 and General Motors (GM) is 12.5. Therefore, Ford (F) is the winner.
Revenue Growth: We want our stocks to be increasing their sales, because this will give companies the ability to increase their dividend payments in the future. From 2012 to last 4 quarters, Ford (F) increased its revenue by 8.7% and General Motors (GM) increased by 0.1%. Ford (F) is growing much faster, and is the winner again.
And the Winner is…
With Ford (F) winning 2 categories, Generals Motors (GM) winning 1, and one tie, the winner is Ford (F).
Ford (F) has been increasing its dividend in January for the last 2 years by $0.10 per share per year, and there is a good chance they will do it again. With our goal of making $12 per hour with this account, we will take $12/year and divide it by $0.70 per share, and round up to 18 shares of Ford (F).
What we Purchased
Today, we bought 18 shares for a total of $254.86 including commission. At the current dividend rate, they are going to pay us about $10.80 per year. This is now our 3rd stock purchase. We are starting to get on our way to building a passive income stock portfolio of dividend paying stocks. You can review more stock purchases here.
What do you think of our pick for the Best Car Dividend Stock? Would you have picked another? Please feel free to share your thoughts in the comment section below.
- F – We own shares.
- GM, TM, VLKAY, HMC, and TSLA – We do not own shares.