As a review of my portfolio might attest, I have a bias for tech, as I truly believe that we are in the midst of the greatest transformation the world has known, ushered in by the increasing hyperacceleration of technological progress.

That means Internet of Things, AI, Virtual Reality, and yes, driverless cars.

The competition to build and provide autonomous vehicles is shaping up to be a large cage match that will pit world’s two most valuable companies – Apple & Alphabet – as well as host of OEMs, tech companies, ride sharing companies, and parts suppliers against each other – each hoping to gain the upper hand in the early goings of this massive industry paradigm shift.

This future of driverless cars are coming, and sooner than many think, and certainly within 5 or so years.

If you are bullish about technology shift, want to get ahead of it, and you like dividends, then in this article I’ll share my favorite stocks currently to play the trend.

What we will cover

  • What are autonomous vehicles and why should I care?
  • Imagining a future of driver-free vehicles
  • My 6 favorite dividend payers with autonomous vehicle plans

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What are autonomous vehicles and why should I care?

Autonomous vehicles are vehicles of the not-too-distant future that can sense it’s environment and navigate without human input.

They detect their surroundings using sensors like radar, lidar (light radar), GPS, and computer vision, and use advanced control systems interpret that information to determine appropriate navigation paths.

The reason why you should care is the future is practically here. And this technology will complete transform our society and how we commute.

We're already beyond the future

The Back to the Future future has already passed

Imagining a future of driver-free vehicles

Our future looks accident free

In the future,

  • Accidents would be a thing of the past. By comparison, today there are 33,000 accidents a year in the US caused by human error.
  • We’d be able to fit more cars on the road that fit much more closely together which would be kind of cool, and definitely more efficient
  • We could become more productive as a society, since we could dramatically increase the speed limit and get to our destinations more quickly
  • For the beer drinkers among us, good news! You could finally drink & drive
  • Reduction in the need for police and premiums on auto insurance
  • People could go fully mobile, and live in their vehicles, travelling around the countryside in their vehicle-home

Still, the path to this future is not completely clear sailing, or clear driving, if you will. Technical and societal issues persist, for instance:

  • Many people don’t like change and would fear forfeiting their control to their car
  • Hackers could compromise car systems, causing fatalities and inspiring fear in the population
  • The navigation system has to be fail-proof – there’s no room for error, ever
  • Current road systems may need changes for autonomous vehicles to operate optimally
  • Many people just like driving, and might be reticent to give it up, technology or not

Some say autonomous vehicles will increase ownership and car use since it will be easier to use them. And that it will increase urban sprawl and travel. Others say that it will decrease car ownership since it will be easier to carshare, which will discourage outright ownership and total usage.

The holy grail for a lot of these OEMs is to merge autonomous vehicles with ride sharing, which helps to explain some of their recent investments in Lyft (GM), and Uber (Toyota).

My favorite dividend payers with autonomous vehicle plans

Below are my favorite dividend payers set to capitalize on this trend, ordered in ranking of attractiveness at the current time. Note that these are only dividend payers, so no Tesla (TSLA) or Mobileye (MBLY) here.

#6 General Motors (GM)

GM autonomous vehicle testing in San Francisco

GM autonomous vehicle testing in San Francisco

I think GM has a rather bad impression among the public when it comes to technology, given they have an “old-school” reputation, so if you don’t know the space, you might be surprised that they’re already investing heavily in the technology.

First, GM purchased $1 Billion to purchase self-driving startup Cruise Automation. And as of 2 days ago, according to readwrite, GM is going to be spending $1 Billion on in it’s Warren Tech center in Detroit. So clearly GM sees autonomous vehicles in their future, and are also investing heavily. While they’re currently behind Google, Tesla, and Daimler, they expect their in-house and real-life testing to propel them ahead of other automakers.

  • Yield: 5.18%
  • P/E: 4.28
  • Payout Ratio: 22.03%
  • Quarterly earnings growth (YOY): 106.7%
  • Morningstar Rating: 4/5

#5 Apple (AAPL)

Rumors of Apple's Project Titan could possibly involve an electric/ autonomous car

Rumors of Apple’s Project Titan have surfaced

Apple is as much a brand as it is one of the most innovative companies, with, according to chief executive Tim Cook “the mother of all balance sheets,” with over $233 billion in cash.

Apple hasn’t publicly confirmed it’s interest in automobiles, but recently invested $1 Billion in Chinese ride sharing company Didi Chuxing Technology Co. And according to people familiar with the company’s plans Apple has been hard at work on electric (codenamed: “Project Titan“) and autonomous vehicles with more than 1,000 employees working on it currently. Reports are pointing towards a goal of 2020 for some kind of automotive product launch – most likely electric at first, with some kind of self-driving functionality added in the future.

Despite the fact that Apple remains a cash printing press, sentiment on this stock has been rather bearish as of late, due to a decrease in sales, issues in China, and a feeling among many that it’s best days may be behind it. That said, on a pure intrinsic valuation perspective, it’s clear that Apple shares currently trade at a discount, which should please the value investor who believes in Apple’s long term future prospects.

  • Yield: 2.37%
  • P/E: 10.40
  • Payout Ratio: 22.7%
  • Quarterly earnings growth (YOY): -22.5%
  • Morningstar Rating: 4/5

#4 Ford (F)

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Ford envisions its’ autonomous vehicles as “mobile movie theaters, with screens and projectors that vanish into the ceiling as passengers take over the wheel.”

This vision is interesting, in that it stands in contrast to Google’s vision for a future that needs no human interaction at all.

In 2016, Ford created a new subsidiary called Ford Smart Mobility, LLC to push forward their agenda on autonomous vehicles and car-sharing. Ford says that they envision themselves in the future as both an auto as well as a mobility company, with this subsidiary helping to lead the way in some of its’ forward thinking initiatives. Ford is tripling its’ engineering investment in this area, and already has the largest fleet of autonomous vehicles on the road today.

With the recent Brexit news, Ford shed 6% of its’ value, thanks in part to substantial exposure to Europe and the UK, and providing a potentially attractive buying opportunity over the next few weeks, and going ex-dividend in late July.

  • Yield: 4.48%
  • P/E: 5.8 (Yes, their P/E is almost as low as their yield)
  • Payout Ratio: N/A
  • Quarterly earnings growth (YOY): 112,7%
  • Morningstar Rating: 4/5

#3 Alphabet (GOOGL)

Google's autonomous road trials have already begun

Google’s autonomous road trials have already begun

Ok, so I know I’m cheating here with the current non-dividend payer on a dividend list. But for me the operative word is “current.” With $78Bn of cash in the coffers, I am betting that good ol’ Goog will follow Apple and institute a dividend sometime in the next few years. And even if they don’t, one can always take the astronomical growth this company should continue to experience, and then sell the profits into dividend payers in the future.

In any event, Google has been working on autonomous vehicles since 2009, literally an eternity in this space. This company through their “X” (Formerly “Google X”) arm has one of the most high-profile autonomous vehicle programs out there, and has already started road trials. It is unclear if Google will partner with other OEMs or if it will manufacture it’s own. Like Apple, we’re looking at 2020 to see a finished product.

Currently Google makes up a huge chunk of my portfolio, so I won’t be buying any more, but if I didn’t have any shares, this would be at the top of my list, dividend or not.

  • Yield: N/A
  • P/E: 27.88
  • Payout Ratio: N/A
  • Quarterly earnings growth (YOY): 19.7%
  • Morningstar Rating: 3/5

#2 Delphi Automotive PLC (DLPH)

 

Delphi car

Delphi has created a new kind of human-machine interface for autonomous cars

Delphi is a large automotive parts supplier headquartered in the UK

While you’ve probably never heard of Delphi, your car probably has some of its’ technology inside it. They are a former part-supplier unit of GM, and how a current supplier to GM, VW, and Ford.

They have created a network of software and sensors that can be outfitted into existing cars to make them autonomous. In January, they showed off a new autonomous driving concept at CES, which drove itseld 3,000 miles around the country in April. Everything they sell – cameras, radars, and software, is almost ready for highway use. Earlier this month, analysts at Piper Jaffay suggested that non-dividend payer Mobileye and Delphi Automotive were in the best spot to benefit from vehicle automation.

Delphi’s strengths such as its revenue growth, growth in net income, good cash flow from operations, growth in earnings per share and notable return on equity outweigh the fact that the company has had generally high debt management risk by most measures.

As of this writing, due to the uncertainty surrounding Brexit, Delphi stock has gone on sale, plunging 12.2% on Friday. That said, over the longer term, Delphi remains well poised to take advantage of these longer term shifts within the industry.

  • Yield: 1.64%
  • P/E: 10.55
  • Payout Ratio: N/A
  • Quarterly earnings growth (YOY): 103.3%
  • Morningstar Rating: 3/5

#1 Nvidia (NVDA)

CEO and new billionaire Jen-Hsun Huang talks about Nvidia's Drive PX2

CEO and newly minted billionaire Jen-Hsun Huang talks about Nvidia’s Drive PX2

Nvidia is a computer graphics company founded in 1993. It’s business is based on 2 technologies: the GPU and the Tegra processor. The GeForce GPU is what they’re best known for historically, and have been very popular among video gamers, like my former self. Their Tegra processor provides processors for their drive automotive computers.

Part of Nvidia’s equity value rests on it’s balance sheet – $4.7Bn. Granted, the current dividend yield isn’t very impressive, but all of this cash supports dividend strength in the future. Moreover, while PC sales are declining, much of their excitement revolves around the work that they’re doing in cloud computing, having an attractive product lineup, and its’ automotive plans.

Their autonomous vehicle results and forecasted projections as of late have been impressive.

Billed as “the world’s first AI supercomputer for self-driving cars,” the Drive PX2 has the same processing power as 150 Macbook Pros, sitting in a computer the size of a lunchbox. CEO Jen-Hsung Huang has predicted that revenue from automotive will grow from $100M quarterly to $1Bn. Which is a big deal since total company revenue was $4.7Bn last year.

The excitement around this company has resulted in a huge run-up from $19.09 to a high of $48.54 over the past 52 weeks.

Nvidia barely makes the list here as their valuation remains quite stretched due to the dramatic run up in prices over the past year. Therefore, I am not looking to buy any more at this time. However, this is a company I am still keeping an eye on and following with interest, in case of further market pullback or change in circumstances.

  • Yield: 0.95%
  • P/E: 39.02
  • Payout Ratio: 36.19%
  • Quarterly earnings growth (YOY): 46.3%
  • Morningstar Rating: 3/5

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So that’s my list. What about you? Are you bullish on the technology or any of these companies? Why or why not?

Full disclosure: I am long GM, F, GOOGL, APPL, and NVDA.

Thanks for stopping by!