American Depositary Receipts (ADRs) make it easier for Canadian and other Western investors to benefit from the value of the best overseas companies.
While car sales will likely remain depressed for the next few months, this world-class firm should outpace many competitors thanks to effective current cost-cutting plans.
HONDA MOTOR CO. LTD. ADRs (New York symbol HMC; www.honda.com) let you tap Japan’s second-largest carmaker, and the world’s biggest motorcycle manufacturer.
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The company sold 981,000 cars in the quarter ended March 31, 2020. That’s down 28.1% from a year earlier on lower sales in China, the U.S. and India. Motorcycle sales fell 5.6%.
As a result, Honda’s revenue in the quarter fell 13.9%, to $31.7 billion from $36.8 billion. The company lost $0.16 per ADR (each equals one share) compared to the year-earlier loss of $0.07. The decline reflects lower sales for more-profitable vehicles and Honda’s restructuring costs.
Value Stocks: Restructuring should generate larger profits
That restructuring involves streamlining the automaker’s lineup of models to make its auto parts more interchangeable. In turn, the company’s variety of parts is reduced and production costs fall. The plan also puts Honda in a better position to expand profits as the global economy rebounds. ADR investors enjoy a $1.04 dividend yielding an appealing 4.0%.
The company still plans to close its only plant in the U.K. in 2022. That facility makes the hatchback version of its popular Civic model.
The closure is largely due to declining demand for diesel-powered cars. Uncertainty surround the terms of the U.K.’s planned departure from the European Union likely also contributed to the decision.
Honda has yet to reveal how much it expects to pay in severance and other costs.
I purchased Honda after reading this article, and doing some other research. Now, I see they have cut their dividend to 1.6%, although I never actually saw any articles telling that news.
Would you still recommend HMC as a hold for a long-term investor – approx. 13 years?
Thanks for your question. We still see Honda as a buy and plan to update our advice on the ADRs soon in an upcoming issue of Wall Street Stock Forecaster.
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I purchased Honda after reading this article, and doing some other research. Now, I see they have cut their dividend to 1.6%, although I never actually saw any articles telling that news.
Would you still recommend HMC as a hold for a long-term investor – approx. 13 years?
Thank you.
Thanks for your question. We still see Honda as a buy and plan to update our advice on the ADRs soon in an upcoming issue of Wall Street Stock Forecaster.