Please ensure Javascript is enabled for purposes of website accessibility

2 Sneaky Dividend Stocks for Savvy Investors

By Daniel Miller – Updated Oct 19, 2017 at 4:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These two stocks probably didn't show up on your last dividend screen, but overlooking them could be a huge mistake.

When investors look for dividend stocks, many search for yields above 3%. And that's a fine strategy, but it leaves out many companies with bright futures, and solid dividends, that can build on their current yields. That's exactly the case with these two businesses: Goodyear Tire & Rubber (GT 2.58%) and, until its name changes soon, Delphi Automotive (DLPH)

Driving higher

Many of us drive every day, yet few of us think of tires when it comes to investing. Evolving tire trends could benefit Goodyear's business in the near future. For example, consumer tires have become larger (Goodyear's definition of this category includes tires larger than 17 inches in diameter). Since larger tires have higher margins and the trend suggests tires will become even larger, margins should get a short- and medium-term boost.

Tire lifecycle graph showing new tires are larger and higher-margin than older tires.

Image source: Goodyear Deutsche Bank IAA Cars 2017 Conference, Sept. 13, 2017.https://corporate.goodyear.com/documents/events-presentations/deutsche-bank-iaa-cars-2017-conference.pdf

A second, long-term trend arises from the automotive industry's drive to autonomous vehicles, as well as the popularity of ridesharing companies such as Uber and Lyft. As more people put off buying a car and opt to share rides, larger companies should amass vehicle fleets. While that could put some pricing pressure on Goodyear, as larger companies placing larger orders will have more bargaining power than retail customers, the effect should be more than offset by the company's ability to cut shipping costs to retail stores and reduced spending on advertising tires to individual consumers. And a large, established company such as Goodyear could attract more of these massive customers.  

GT Chart

GT data by YCharts.

Another reason Goodyear is often overlooked as a dividend stock is because it reinstated its dividend only a few years ago, in 2013. But management has shown a clear commitment to growing its dividend: Goodyear announced just this week it would increase its dividend 40% to $0.14 per share, for a yield of about 1.7%. If margins improve as larger tires gain market share, the yield should continue to grow.

Hands off the wheel

Investors interested in rapidly advancing driverless-vehicle technology probably weren't looking at Delphi, a parts supplier for the automotive industry. That changed rather quickly when Delphi announced it would spin off its internal-combustion powertrain business, which will begin trading publicly in 2018 as Delphi Technologies. The remaining company will trade under a new name, Aptiv, and will focus on electric vehicle and autonomous-driving technology.

Woman reading magazine in driverless vehicle

Image source: Getty Images.

It's a brilliant move that will help separate Delphi's more lucrative self-driving products from the rest of its business. It will also do one very important thing for investors: enable the stock to trade at a valuation closer to technology companies rather than typical auto-parts suppliers. As the company becomes a contender in self-driving-vehicle technology -- it's already in partnerships with BMW (BAMXF 1.44%) and Intel (INTC 0.89%), among others -- and its margins improve accordingly, expect the market to reward the stock with a higher multiple. 

Simply put, Delphi is becoming less of a traditional Detroit automotive-parts supplier and more of a Silicon Valley technology developer. It even raised guidance recently to reflect the improvement in its core business. And while the stock is a long-term play -- investors need to wait for autonomous-vehicle technology to advance and become a sizable part of our transportation framework -- Delphi remains a sneaky smart dividend stock as its yield of 1.17% won't be picked up by many stock screeners.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Delphi Technologies PLC Stock Quote
Delphi Technologies PLC
DLPH
Intel Corporation Stock Quote
Intel Corporation
INTC
$27.13 (0.89%) $0.24
The Goodyear Tire & Rubber Company Stock Quote
The Goodyear Tire & Rubber Company
GT
$11.15 (2.58%) $0.28
Bayerische Motoren Werke Aktiengesellschaft Stock Quote
Bayerische Motoren Werke Aktiengesellschaft
BAMXF
$70.50 (1.44%) $1.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.