Lithia Motors

Lithia has acquired around 100 dealerships in just two years, growing revenue from 8.7 billion dollars in 2016 to 37.6 billion last year. That's a 17.7 percent annual growth rate. The dividend has been raised for 16 consecutive years, and the payout ratio is only 6.8 percent, which means there's massive room for future dividend hikes.

The boring parts of the business are actually the most profitable. Service, parts, and finance/insurance make up only 14 percent of revenue but generate around 70 percent of total gross profit. Same-store service gross margin hit a record 58.4 percent last quarter, and once a customer finances a car at Lithia, they keep coming back for maintenance for years.

All those acquisitions came with debt. Lithia carries 13.6 billion dollars in net debt, much higher than its 6 billion dollar market cap. The balance sheet has a Ba2 credit rating from Moody's, the lowest tier of investment-grade-adjacent. If a recession hits and car sales slow, that leverage gets uncomfortable fast.

Cars are big-ticket purchases, and demand is sensitive to interest rates and the economy. Tariffs on imported vehicles could hit margins since 75 percent of Lithia's revenue comes from import and luxury brands like Toyota and Honda. The average gross profit per new vehicle already fell 11 percent year over year, and analysts expect overall vehicle sales to drop next year.