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Toyota Motor Corp. (NYSE: TM) stock fell more than 1% Thursday, following Wednesday's recall of every third-generation Prius the company has sold.
The recall covers 1.9 million vehicles worldwide, including 713,000 in North America. Reportedly, a programming glitch in the hybrid system prompted the recall. The malfunction could shut down the hybrid engine, forcing the vehicle to stop, even if it is being driven.
This was the third recall in the past five years for Prius. In 2012, the company recalled more than 7.4 million vehicles because of a fire concern stemming from the vehicle's power window
Toyota did not reveal any cost estimates for the most recent recall.
In addition to today's 2% drop, TM stock is down more than 11% in the past six months. Shares of Toyota currently trade at $115.55.
Here's what this recent bad news and poor stock performance mean for TM stock investors in 2014.
How to Play Toyota (NYSE: TM) Moving Forward
Toyota is the world's top-selling automaker, having sold more than 9.98 million vehicles worldwide in 2013. That figure was a 2.4% gain from 2012 and outpaced the second-largest automaker, General Motors Co. (NYSE: GM), by 270,000 vehicles.
However, the gap between Toyota and GM is shrinking.
In 2012, Toyota sold 460,000 more vehicles than GM. General Motors saw an increase of 4% in vehicle sales in 2014, ahead of Toyota's 2.4%. Volkswagen AG (OTCMKTS: VLKAY) was not far behind in third, with 9.5 million vehicles sold last year.
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A bullish sign for all automakers is the increasing demand from China, the world's largest auto market. Nearly 2.2 million vehicles were sold in China in January. That was a 6% increase from January 2013.
For the full year 2013, nearly 22 million vehicles were sold in China – an increase of 14% from 2012.
However, Japanese automakers like Toyota have seen sales slip in China. They accounted for just 13.6% of total vehicle sales in 2013.
TM pays its shareholders a quarterly dividend of $1.27, good for a 2.2% yield. The modest payment is nice, but it does not compare favorably to automakers like Ford Motor Co. (NYSE: F) and GM who pay dividend yields of 3.3% and 3.4% respectively.
"I wouldn't buy [Toyota] here given its dividend yield is less than Ford's and the Prius problems may cost it, especially if any fatalities result," Money Morning's Capital Wave Strategist Shah Gilani said Thursday. "If you own it, it's a great hold from lower levels."
Those that have held the stock long term have seen a profit of 11% in the last 12 months, so for long-term investors, holding TM stock is the right play at the moment.
Anyone looking to get in on TM stock now should wait until after the dust settles from the Prius recall. Toyota stock was down 0.5% just before 2 p.m. Friday.
Do you own a Prius that is being recalled? Do you own TM stock? Join the conversation on Twitter @moneymorning using #Toyota.
Sometimes the editors at Money Morning joke that the big Wall Street banks must have a bug on our phones. Here's why – some of these coincidences are quite remarkable…
- Yahoo! Finance:
Toyota to Recall 1.9 Million Prius Cars for Software Defect in Hybrid System
- Business Standard:
China Car Sales at Record High
Toyota Is World's Top-Selling Automaker Two Years in a Row