Ford Revs Up a Special Dividend

The U.S. automakers have enjoyed banner sales over the past year. Fueled by an improving economy, low interest rates and low gas prices, Ford (NYSE: F) put up record profit in 2015.
And, all indications are the company will deliver a similar performance in 2016.
As a reflection of its success, Ford has committed to returning lots of cash to shareholders. It does this with a hefty Ford dividend that provides a nearly 5% yield.
Not only that, but Ford has also stated its intention to distribute special dividends each year, as its fundamental performance allows.
True to form, Ford recently declared a special dividend payout of $0.05 per share. This pushes the total 2017 Ford dividend return above 5%, making Ford an attractive stock to buy for income.

Ford Dividend: A Push Into the Next Gear

Ford currently pays an annual dividend of $0.15 per share. Based on its recent share price of $12, this works out to a hefty 5% dividend yield.
This is already a robust dividend payout—on average, the S&P 500 Index components have a 2% dividend yield.
Not only that, but Ford also declared its first-quarter supplemental payout of $0.05 per share.
This means that the total 2017 Ford dividend payout should equal $0.65 per share, good for a 5.4% dividend return.
The reason why Ford’s dividend yield is so high is because its share price has barely budged for several years. Ford stock has risen 1% in the past five years.
Investors are afraid that the good times are about to come to a screeching halt. Interest rates are rising, as are gas prices.
This could put a dent in the auto maker’s bottom line. But so far, so good: Ford’s earnings per share dipped just 2% through the first three quarters of 2016.
The fundamentals of Ford’s business remain very healthy.

Improving Performance in the U.S. and Abroad

In the U.S., the company continues to generate strong sales growth. December U.S. sales rose 5%, and reached a 12-year high.
The Lincoln brand is playing a huge factor in Ford’s record sales results. Lincoln vehicle sales jumped 18% in December. Full-year Lincoln sales rose 10%.
The U.S. segment is anchored by Ford’s flagship F-series pickup trucks. The F-Series has been the best-selling pickup for 40 years, and the best-selling vehicle in the U.S. for the past 35 years.
And, Ford is generating improving profitability overseas. The struggle to turn a profit in Ford’s international markets dogged the company for years.
But profits are improving in several major international regions. For example, Ford earned $138 million in European profits last quarter, the sixth profitable quarter in a row, and the highest third-quarter profit total since 2007.
Moreover, Ford’s Asia-Pacific operations delivered record profit last quarter of $131 million, up $109 million from the same quarter in 2015.
Ford’s improving margins around the world, and solid growth rates in the U.S., are providing huge free cash flow to the company. Over the first nine months of 2016, Ford generated $12 billion of free cash flow.
Ford still expects approximately $10.2 billion in pre-tax adjusted profits in 2016. This is more than enough to continue investing in the business, paying off debt and rewarding shareholders with strong dividends.

Steady Profits Could Push Ford Stock Higher

The one major risk for investors would be another recession. If the U.S. enters recession, it would be damaging to Ford . . . not only in the form of lower auto sales, but Ford’s massive financial arm would be hurt as well.
Barring a severe recession, economic conditions should remain supportive of growth. Total 2017 Ford profits are expected to come in slightly below 2016 levels, due to increased investments in autonomous vehicles and mobility.
But these investments should pave the way for continued growth over the long term. And, the company expects to produce $3 billion of cost savings in 2017
Ford management expects profits to rise once again in 2018.
Assuming the company’s fundamentals remain intact, Ford stock could be a buying opportunity. The stock trades for a price to earnings ratio of just 6. By comparison, the S&P 500 Index has a price to earnings ratio of 25.
Ford stock is very cheap, and the Ford dividend yield is robust. Shares look like a bargain for value and income investors.
Disclosure: The author is personally long F.

To top