These 2 Big-Brand Dividend Stocks Are Ridiculously Cheap

By John Rosevear Markets Fool.com

It's getting harder and harder to find value in the stock market. But there are still a few sectors that Mr. Market seems to have overlooked. One big one: auto stocks.

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Not all auto stocks have been overlooked, of course. Silicon Valley's electric-car darling, Tesla (NASDAQ: TSLA), gets a lot of attention from investors. It's obvious why: Tesla's story is arguably the future of autos, unfolding here in the present. Investors love that.

The thing is, Tesla isn't the only company moving the auto industry from the gas-guzzling present to a connected, electrified future. A few of the old automakers are right in the cutting-edge mix, making smart, aggressive moves to thrive and profit as the industry transforms.

To some extent, those stories are happening a bit below Wall Street's radar. Investors haven't yet caught on, in part because Tesla's story has overshadowed the others.

That's a prime recipe for value. Here are two big-name automakers that are well-positioned for the future, available today at value prices -- both sporting dividend yields over 4%.

Ford Motor Company: Using pickup profits to transform

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When you think of Ford Motor Company (NYSE: F), you might think about huge-selling pickup trucks, or Ford's dramatic turnaround a few years ago.

You probably aren't thinking about electric cars, self-driving, or new concepts of personal mobility that don't involve selling cars to individuals. But CEO Mark Fields and his team, all battle-tested veterans of that turnaround, are doing a lot of thinking about all of those things these days.

Ford's super-profitable pickups are helping to fund electric cars and new high-tech businesses as the Blue Oval transforms. Image source: Ford Motor Company.

In fact, they're doing more than thinking. Last fall, Ford explained how it's transforming itself into an "automotive and mobility company." In a nutshell, Ford is making major moves to optimize the profitability of its current business while simultaneously making big investments in self-driving, electric vehicles, and new technology-enabled concepts of "mobility," or transportation as a service. (Click on each to learn more.)

Ford is already solidly profitable. It posted operating profit of $10.4 billion in 2016 (its second-best ever) with a 6.7% operating profit margin in its auto-related business. Ford's near-term goal is to get that margin up to a sustainable 8% by investing in its strengths (including all those extremely profitable pickup trucks) and boosting the profitability of its weaker lines of business, like small cars and the resurgent Lincoln luxury brand.

Ford plans to begin mass-producing self-driving cars for fleet use in 2021. It may also sell its self-driving system to other automakers. Image source: Ford Motor Company.

That margin boost will in turn help fund Ford's new lines of business. Those will be even more profitable: Ford is targeting operating margin of 20% or better in each.

Long story short: Ford's bottom line is primed for significant growth over the next few years, much of it driven by technology. But right now, it's trading at just 7 times its adjusted 2016 earnings, while paying a very sustainable 4.8% dividend.

General Motors: Jumping ahead of Silicon Valley

I've listed General Motors (NYSE: GM) second only because investors have started to catch on to its great story. While Ford's stock price hasn't done much over the last year, GM's is up almost 28%. But as I'll explain, at just 6.1 times 2016 earnings, GM's stock is still a very good value given the story that's unfolding.

GM data by YCharts

In a lot of ways, GM's story is like Ford's. GM is making big moves to boost the profitability of its core business while investing in new technology-enabled businesses that will help it thrive and profit instead of being "disrupted" as the industry transforms.

But GM is arguably farther along. GM beat everyone, even Tesla, to market with an affordable 200-plus-mile electric car. It's gearing up for a huge test of "thousands" of self-driving vehicles with ride-hailing start-up Lyft, of which GM owns 9%. GM's car-sharing business, Maven, is a fast-growing high-tech rival to Zipcar -- and as with GM's partnership with Lyft, Maven is introducing lots of young urban folks to GM's best new models.

The electric Chevy Bolt is GM's platform for future tech -- and the first of a whole line of electric GM vehicles. Image source: General Motors.

Meanwhile, GM's core business is already performing at a level few could have imagined a decade ago. It earned $12.5 billion in operating profit last year, with a margin of 7.5%, on all-time record revenue of $166.4 billion. CEO Mary Barra thinks GM can do better: Several initiatives are under way to push that margin up into the 8% to 10% range over the next few years.

GM's dividend is deliberately conservative, to ensure that it's sustainable through a downturn. But even so, and despite the run-up in GM's stock price over the last year, it's still yielding about 4.1%. Rather than raising the dividend to levels it might not be able to sustain, GM is returning cash to its owners with share buybacks -- $14 billion worth since early 2015.

Long story short, here's what you get with GM today: profit growth, cutting-edge technology, a strong and steady dividend, an ongoing share-buyback program, and a value price.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford and Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.