I have owned stocks across a wide range of industries and sectors over the years. My portfolio includes stocks in biotechnology, consumer goods, energy, financials, medical devices, real estate, retail, technology, telecommunications, utilities and more.

However, I can’t remember ever investing in an auto stock – until recently. Last week I opened a new position in Honda Engine (HMC -1.97%). That’s why I just bought this dividend-paying stock with an extremely high yield.

1. The price is right

Let’s face it: many US stocks are currently valued at a premium. S&P500 Shiller’s CAPE ratio is not far below its all-time high. I’m not a nervous person who expects a crash in the near future. However, I don’t want to pay too much for a stock either.

The good news about Honda Motor is that the price is right. This stock is trading at a price-to-earnings ratio of less than 6.6. The enterprise value to EBITDA ratio is a super-low 2.5. We’re talking dirt cheap here.

This attractive valuation isn’t because Honda’s stock price has crashed. Sure, the stock hasn’t been a big winner in 2024. But it’s at least up. And it’s not because the company’s business is weak, either. Honda’s revenue rose nearly 17% year over year in the quarter ended June 30, 2024. Earnings rose more than 8%.

2. The future is bright

The important thing is that I believe that Honda has a bright future. I am not alone in this view. Analysts who LSEG The company is forecast to achieve average annual earnings growth of 19% over the next five years.

Honda’s vehicles are known for their high quality and reliability. Consumer Reports ranked the company’s Acura brand 4th in the reliability category among all major auto brands and the Honda brand 5th. I fully expect Honda to maintain its good reputation.

I also like Honda’s strategy with hybrid and electric vehicles. The company has introduced hybrid versions of its CR-V, Accord and Civic models. Its “supercar factory” in Marysville, Ohio, is currently producing the first mass-produced hydrogen fuel cell electric vehicle in the United States.

3. The dividend is dynamite

You didn’t think I’d leave out Honda’s fantastic dividend, did you? The company’s dividend yield is currently over 5.4%. I consider any yield that is at least four times the S&P 500 yield to be extremely high. Honda’s dividend meets that criteria.

I would prefer if Honda had a long track record of consecutive dividend increases. Unfortunately, that is not the case. However, the automaker has almost tripled its dividend in the last five years and increased it by 26.5% in the last 12 months.

More importantly, Honda is in a strong position to increase its dividend in the future. The dividend payout ratio is 28.6%, reflecting significant financial flexibility to put more funds into the dividend program.

I plan to hold Honda for the long term. I hope it will provide me with a solid income in the future to help me fund my retirement. In the meantime, the stock’s high yield makes it easier for me to achieve above-average total returns.