1 Incredibly Cheap Dividend Stock to Buy Now

Dividend stocks offer investors a phenomenal way to reduce the overall volatility of a portfolio. The regular payouts those shares provide can help offset stock price declines, and studies have shown that during downturns, dividend payers generally outperform non-payers.

The best dividend stocks are the ones that not only offer an above-average yield but also have upside potential on their share prices. That’s exactly what Stellantis (NYSE: STLA) appears to be and its why you might want to consider this auto stock.

Stellantis stock trades near the top of its 52-week share price range, and yet it’s still trading at an incredibly cheap price-to-earnings ratio of 3.2 and it offers an eye-popping yield of 6.6%. The jump in price actually brought the yield down from 9%-plus levels seen back in May 2023.

Stellantis and the business of electric vehicles

Even more important than the stock price and dividend doing well, Stellantis is making money on a vehicle segment that has been causing competitors billions in losses, and it’s investing in a key market for the future.

Most investors are likely already aware that manufacturing vehicles is a complicated and capital-intensive effort. They also likely know that manufacturing electric vehicles (EVs) is thus far proving to be even more complicated and more expensive than producing traditional internal combustion models.

Stellantis, however, shocked many when CEO Carlos Tavares announced that its operations were in the black on EVs in the U.S. and in Europe. You can understand why this was shocking to some investors: Many companies have been bleeding cash as they try to ramp up their EV production volumes and bring down their costs.

Case in point: Ford Motor Company said that through the first three quarters of 2023, its Model e unit, which houses its EV business, lost $3.1 billion, and management expects the segment to book a full-year pre-tax loss of $4.5 billion. That’s a lot of dough.

The key to Stellantis EV profitability has been its strict focus on costs: “This is an equation you can only solve if you reduce cost, and this is what we are reasonably good at,” Tavares said at a Goldman Sachs conference in December.

Speaking of costs…

Tavares also mentioned that its EV profitability in Europe was slightly ahead of the U.S., and it expects cost parity between producing an EV and an internal combustion engine (ICE) vehicle to happen in 2026. Reaching cost parity is happening faster in Europe than in the U.S. because Stellantis is only just beginning to sell EVs in the U.S.

A recent move by the company could further its profitability efforts. Stellantis bought a 20% stake in Chinese EV maker Leapmotor for $1.5 billion. The deal with Leapmotor will give Stellantis access to its technology and manufacturing advances. The deal will enable Stellantis to bring cheaper, yet tech-focused, Chinese EVs to European markets in a consolidated and more profitable way.

Stellantis stocks is incredibly cheap with more upside potential

The future of the automotive industry is electric vehicles, and the sooner companies can make them profitably, the better it will be for their shareholders. Right now, sales of EVs in the U.S. market are growing at a slower rate than was previously anticipated, but that gives Stellantis an edge due to its European operations and its new deal with Leapmotor.

Already Stellantis is making money on a class of vehicles that is costing many of its competitors billions of dollars in losses, and as it gains an even stronger foothold while exporting EVs from China at competitive prices, there’s plenty of upside for the stock. And while investors wait for those share price gains to arrive, they can enjoy its 6.6% dividend yield.

Should you invest $1,000 in Stellantis right now?

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Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

1 Incredibly Cheap Dividend Stock to Buy Now was originally published by The Motley Fool

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