Daimler the German Auto Value

I have been real impressed with auto stocks for some time because of all the cash those companies generate. That got me wondering about the world’s oldest carmaker Daimler (OTC: DDAIF).

Daimler is the modern successor of Benz & Cie; the company that built the first automobile back in 1886. Its founder Carl Benz patented a gasoline burning car that year, meaning that automobiles are now 130 years old. Benz’s wife; Bertha, and her two teenaged sons took the first road trip in August 1888 driving from Mannheim to Pforzheim, Germany, to see her mother.

The World’s Oldest Auto Company

Benz also created the first mass produced car the Benz Velo of which 1,200 units were sold by 1894. One of Benz’s main competitors was Gottlieb Daimler who started building cars in Stuttgart about the same time. Daimler tested his first motorcycle the so-called riding car as early as 1885.[1]

Daimler built the first four wheeled auto or motor carriage in 1886. Benz’s first car only had three wheels meaning it was really a tricycle.

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Daimler’s most famous brand Mercedes originated in 1901 when the company hired Emil Jellinek to design a race car. Jellinek named the vehicle for his daughter Mercedes and an auto legend was born. The companies merged to create Daimler Benz in 1920.

Today Daimler is still at the cutting edge of automotive technology. It is a leader in autonomous vehicle, hydrogen fuel cell and electric vehicle technology. Its products range from heavy trucks to the Mercedes luxury cars that are beloved by the American country club set.

Does Mercedes Make Money?

The brands and history give Daimler a lot of value but skeptics will ask does it make money? The answer to that question is yes, Daimler is still making a lot of money over 130 years later.

The financial numbers from June 30, 2016, show just how much money the company is making. Some highlights include:

  • $167.95 billion in revenues.

 

  • A net income of $8.864 billion.

 

  • A diluted earnings per share or EPS number of 8.271 for second quarter 2016.

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  • A profit margin of 6.29%.

 

  • Total Assets of $255.99 billion.

 

  • Cash and short-term investments of $27.97 billion.

 

  • $15.59 billion in cash from financing.

 

  • $2.101 billion in cash from operations.

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These numbers demonstrate that Daimler is a cash-rich company that has a lot of float. That makes it a value investment, and that value might be growing.

Daimler’s revenues have grown significantly over the past two years. Back in June 2014, it reported TTM revenues of $147.66 billion that grew to $167.95 just two years later. That means revenues increased by $20.29 billion in two years.

What is more important from an income investors’ standpoint is that the revenue growth appears to be sustainable. The revenues were $168.64 billion in June 2015.

The net income has also been fairly impressive it has been over $8.6 billion for every quarter since January 2013 or three years straight. That shows us that Mercedes is capable of generating sustainable float and maintaining it for long periods of time.

 Yes, Daimler Pays off for Investors

Beyond the income Daimler also pays off for investors as a really nice dividend stock. Daimler shareholders received a dividend yield of 5.3% on October 13, 2016. That was a significant increase over the 3.21% yield from the same date in 2015.

Daimler’s dividend yield increased by more than 2% over the course of a year. It’s also been much higher at times, data provided by ycharts, indicate it rose to 6.42% on July 5, 2016.[2]

The yield certainly paid off for Daimler shareholders who received a dividend of $3.705 on April 7, 2016. That yield was more than $1 more than they received on April 2, 2015 which was $2.638. This makes Daimler one of the best dividend stocks around if you’re looking for continuous income.

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Beyond dividends there was a great return on equity of 15.44% on June 30, 2016. That means Daimler pays off for those looking for dividends and persons interested in increased share value.

Daimler is a Great Long-Term Automotive Investment

Daimler is also a really good long-term investment in automotive technology because it is not that flashy a company. Yet its technology is among the most advanced around.

DDAIF is a great investment in automotive technology for two reasons. The company has the resources needed to make the technology work; and it is willing to do the hard work and heavy lifting necessary to commercialize the tech.

It is also willing to apply that technology to less glamorous but potentially far more profitable businesses. A perfect example of this is the self-driving Freightliner semi-tractor rig that Daimler demonstrated in Nevada last year.

A self-driving semi will not attract the attention of a Tesla S series but there is a huge potential market for such a solution. There are an estimated two million tractor trailers on the road in the United States alone and there’s a shortage of truck driver’s to boot.

The American Trucking Association estimates that the industry is 40,000 drivers short, The Indianapolis Star reported. That shortage is also about to get worse, the average trucker in the United States is 49 years old, meaning many of them will be heading for retirement in the next two decades.

An Automotive Value Investment for the Future

Demand for trucking is also high; around 80% of the communities in Indiana depend exclusive on trucks for freight transport. That means there will be a lot of demand for Daimler’s self-driving semis if they ever hit the road.

The self-driving semi proves that Daimler is an automotive value investment for the future. Instead of publicity stunts the company is applying cutting edge technology where there might be a widespread demand for it. That might not equal profits next year, but it may pay off big time in the next two decades.

If you are looking for a long-term automotive technology investment you should certainly considering adding Daimler to your portfolio. The world’s automaker looks like it will have a lot of value for generations to come.

 

 

[1] https://www.daimler.com/company/tradition/company-history/1886-1920.html

[2] https://ycharts.com/companies/DDAIF/dividend_yield