Although inflation is showing signs of cooling, the chances of the economy escaping a recession are slim due to the Fed’s intention to keep raising interest rates. Amid the uncertain economic and market conditions, investing in high dividend-yielding stocks Honda Motor (HMC), Global Partners (GLP), and Karooooo (KARO) could add a defensive layer to one’s portfolio. Continue reading….
After increasing 7.7% in October and 7.1% in November, inflation cooled again in December with a 6.5% increase year-over-year. The Fed signaled a slowdown in rate hikes in response to the easing inflationary pressure but has also stressed that it would continue raising rates until inflation reached its 2% target. The Fed’s progressive rate hikes could potentially push the economy into a recession.
The Conference Board’s Leading Economic Index (LEI) declined for the 10th consecutive month in December, falling 1% to 110.5, while analysts had predicted a 0.7% drop. This trajectory of the LEI signals a recession, with seven out of the ten index components declining in December.
The World Bank has recently lowered its projection for this year’s global economic growth from 3% to 1.7%, citing deteriorating economic conditions. The revision was caused by a considerable decline in the outlook for the U.S. economy, from an earlier projection of 2.4% to 0.5%.
In addition, 2023 is anticipated to be among the worst years for the global economy in the past forty years, according to Barclays PLC (BCS). Furthermore, Ned Davis Research Inc. has estimated a 65% chance of a severe global downturn.
Since the market volatility is not expected to ease anytime soon, investing in high-yield dividend stocks could act as a defensive layer for one’s portfolio. Therefore, dividend-paying stocks Honda Motor Co., Ltd. (HMC), Global Partners LP (GLP), and Karooooo Ltd. (KARO), which offer more than 5% yield, could be wise additions to your portfolio now.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC is a global manufacturer and distributor of automobiles, power equipment, and other goods. Its segments include Motorcycle Business; Automobile Business; Financial Services Business; Life Creation and Other Businesses. It also sells spare components and provides post-sale services.
On January 13, 2023, HMC and LG Energy Solution, Ltd announced a joint venture to manufacture lithium-ion batteries for HMC’s electric vehicles. The construction of a new battery facility is expected to begin early this year.
All batteries generated by this venture are to be delivered exclusively to HMC plants in North America to power battery-electric vehicles sold in North America. This should strategically benefit HMC.
Also, on December 8, 2022, HMC’s Honda Motor (China) Investment Co., Ltd and Contemporary Amperex Technology Co Limited (CATL) signed a deal to produce batteries for electric vehicles. HMC will purchase 123 GWh of batteries from CATL for use in China’s 100% electric vehicles between 2024 and 2030. The battery supply agreement should ensure HMC an ongoing, reliable supply of batteries.
HMC’s forward EV/Sales of 0.56x is 53% lower than the industry average of 1.20x. Moreover, the stock’s forward EV/EBITDA multiple of 7.03 is 28.9% lower than the 9.89 industry average.
For the fiscal 2023 second quarter ended September 30, 2022, HMC’s sales revenue grew 25% year-over-year to ¥4.26 trillion ($32.67 billion), while its operating profit rose 16.2% from the year-ago value to ¥231.24 billion ($1.77 billion). The company’s profit for the period came in at ¥205.16 billion ($1.57 billion), up 20.1% year-over-year, and its EPS stood at ¥110.85, a 14.8% rise year-over-year.
The company pays a $1.42 per share dividend annually, which translates to a 5.94% yield on the current price. HMC’s five-year average dividend yield is 3.72%, and its payout ratio is 32.44%.
Analysts expect HMC’s revenue for the fiscal year (ending March 2024) to come in at $144.69 billion, indicating a 10% year-over-year improvement. Moreover, the company’s EPS for the same year is expected to increase by 21.8% from the previous year to $2.88. The stock has gained 4.2% over the past month to close the last trading session at $24.09.
HMC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Value and a B for Quality and Stability. In the 62-stock Auto & Vehicle Manufacturers industry, it ranks #8.
Beyond what we stated above, we also have HMC’s Growth, Momentum, and Sentiment ratings. Get all HMC’s ratings here.
Global Partners LP (GLP)
GLP purchases, stores, and transports gasoline and gasoline blendstocks, distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers and retailers in New England, the Mid-Atlantic, and New York. Its segments include Wholesale; Gasoline Distribution and Station Operations; and Commercial.
On January 17, 2023, GLP announced a cash distribution of $0.609375 per unit on the Partnership’s Series A preferred units for the period from November 15, 2022, to February 14, 2023. This distribution will be payable on February 15, 2023, to holders of record on February 1, 2023. The Partnership’s Series B preferred units will also receive a cash distribution of $0.59375 per unit for the same period.
GLP pays a $2.50 per share dividend annually, which translates to a 7.37% yield on the current price level. Moreover, the company’s four-year average dividend yield is 10.69%.
On September 21, 2022, GLP announced the acquisition of Tidewater Convenience, Inc. to further increase the Partnership’s retail reach in the mid-Atlantic region. The acquisition includes 15 locations (14 company-operated) in Southeast Virginia. This might facilitate GLP’s growth.
GLP’s forward EV/EBIT of 5.84x is 21.4% lower than the industry average of 7.42x. Furthermore, the stock’s forward Price/Sales multiple of 0.07 is 95.3% lower than the 1.38 industry average.
The company’s sales grew 39.2% year-over-year to $4.63 billion in the fiscal third quarter that ended September 30, 2022. Its gross profit rose 61.7% from the year-ago period to $328.38 million, while its operating income increased 163.2% year-over-year to $141.30 million.
The company’s adjusted EBITDA came in at $168.51 million, up 112.8% year-over-year. In addition, GLP’s net income stood at $111.44 million, up 231.3% from the prior year’s period, and its EPS increased 262.8% from the year-ago value to $3.12.
The consensus revenue estimate of $18.96 billion for the fiscal year that ended December 2022 indicates a 43.1% year-over-year improvement. The consensus EPS estimate of $9.88 for the same year reflects a rise of 654.2% from the prior year. Furthermore, GLP surpassed its consensus EPS in three of four trailing quarters, which is impressive.
The stock has gained 40% over the past year to close the last trading session at $36.45.
GLP’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GLP also has an A grade for Value and Momentum and a B for Growth and Sentiment. Within the A-rated MLPs – Oil & Gas industry, it has topped among 31 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see GLP’s ratings for Stability and Quality here.
Karooooo Ltd. (KARO)
With its headquarters in Singapore, KARO conducts business through its subsidiary Cartrack Holdings Limited (Cartrack). Cartrack is a leading global provider of real-time mobility data analytics solutions for smart transportation. The company provides a cloud-based smart mobility platform for connected vehicles and other assets.
In terms of forward P/E, KARO is trading at 21.17x, 14.3% lower than the industry average of 24.70x. Also, the stock’s forward EV/EBITDA multiple of 8.36 is 38.6% lower than the 13.61 industry average.
For the fiscal third quarter that ended November 30, 2022, KARO’s revenue increased 29.2% year-over-year to ZAR929.99 million ($54 million), and its gross profit grew 24.2% from the prior year’s quarter to ZAR583.09 million ($33.86 million). The company’s operating profit rose 2.2% year-over-year to ZAR209.13 million ($12.14 million).
KARO pays a $2.40 per share dividend annually, which translates to a 9.97% yield on the current price. Its dividend payout ratio is 57.72%.
Analysts expect KARO’s revenue to increase 18.7% year-over-year to $205.20 million for the fiscal year ending February 2023. The company’s EPS for the current year is expected to rise 10% from the previous year to $1.11. Moreover, KARO surpassed its consensus EPS in three of four trailing quarters.
Shares of KARO have gained 3.2% over the past month to close the last trading session at $23.81.
KARO’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and Sentiment and a B for Value and Stability. Within the Software – Application industry, it has ranked #5 of 139 stocks.
To see additional POWR Ratings for Growth and Momentum for KARO, click here.
HMC shares were unchanged in premarket trading Thursday. Year-to-date, HMC has gained 5.38%, versus a 5.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal’s passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor’s degree in finance and is pursuing the CFA program.
She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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