More Dividends in Store for Ford

Good news for Ford (NYSE: F  ) shareholders: On Wednesday, Ford's board declared a second-quarter dividend of $0.05 per share on the company's common stock.

That's not much of a surprise, of course. It follows on the heels of Ford's first-quarter dividend, which was also $0.05 per share -- and also was the first dividend paid on Ford's common stock since 2006.

That first dividend was a major milestone for the Blue Oval, a sign that its dramatic turnaround was all but complete. This one marks progress, but it's also a reminder that Ford still has work to do.

Easing off the gas pedal
Ford's current dividend isn't exactly the stuff of retirement-building dreams: At current prices, the company's dividend yield is about 1.6%, pretty thin stuff as big-company dividends go. But as outgoing CFO Lewis Booth has said, Ford is inclined to be cautiously optimistic: As business continues to improve, it's reasonable to expect that the company's dividend payments will increase.

"But Ford's in pretty good shape now," you might say, and all things considered, you'd be right. Ford earned $8.8 billion in 2011 before taxes and special items, its third annual profit in a row. U.S. sales have been strong, and Ford's recent emphasis on fuel economy is paying off as gas prices rise. Its upcoming new Fusion sedan looks like a winner, and its acclaimed Focus compact is finding more and more buyers.

So what's the problem? Actually, there are a few.

There's work still to be done
The cornerstone of Ford's turnaround plan was the "One Ford" idea -- simply put, to simplify Ford's global product offerings into a single line of cars and trucks that could be lavished with attention and made into competitive class leaders anywhere in the world. That has worked out pretty well for the most part, and the last pieces of that plan are coming to market this year.

But having great products in markets around the world doesn't help all that much if regional economies are in rough shape. While Ford's European operation isn't hemorrhaging money like General Motors' (NYSE: GM  ) Opel subsidiary, it's also not profiting: Ford Europe lost $190 million last quarter, and Booth has said that Ford expects to lose up to $600 million in the region this year.

As bad as that sounds, it could get even worse. European new-car registrations fell 9.2% in February versus the year before. While sales in Germany -- Europe's largest market -- were essentially flat, they were down sharply in both France and Italy, Europe's second- and third-biggest markets. Analysts still expect the European market to contract by about 5% this year, the fifth straight annual decline -- and one that will worsen the already-bad problem of too much manufacturing capacity in the region.

Asian growth may be stalling
Meanwhile, Ford's ambitious plans to find big growth in China have stumbled, as that market's sales fell sharply through the first two months of the year. Market leaders GM and Volkswagen (OTC: VLKAY) have managed to gain ground, but Ford's year-to-date sales in China were off 16% through February.

This isn't likely to be a long-term problem -- there are still lots of Chinese who don't own cars, and Ford's products are competitive there -- but it is a source of concern. Ford is investing aggressively in China, just introduced the latest Focus there, and plans to roll out 14 more new vehicles by mid-decade.

Finally, while Ford's financial house is in much better order than it was a few years ago, there's still work to be done. The company still had over $13 billion of debt at the end of 2011, and a global pension liability of more than $15 billion. Ford is working to reduce those numbers and neither is an acute concern, but the company's dividend is unlikely to increase significantly until those obligations are dealt with.

In the end, Ford's board may hold off on raising its dividend until the company receives its long-sought credit upgrade to investment-grade status. That will reduce the company's ongoing borrowing costs significantly, and serve as an important psychological milestone for investors -- and might be the final key to making Ford a stock sought out for its dividend.

Ford's dividend will increase eventually, but you don't have to wait to put the power of reinvested dividends to work in your portfolio. In a special new report, Motley Fool analysts have identified "9 Rock-Solid Dividend Stocks," all great additions to a long-term investor's portfolio. This new report is completely free for Fool readers, but only for a limited time -- get instant access to your copy now.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. Motley Fool newsletter services have recommended buying shares of ExxonMobil, Ford, and General Motors and creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 16, 2012, at 2:00 PM, DJDynamicNC wrote:

    I hope it holds off a little longer, I want to keep buying Ford for cheap.

  • Report this Comment On March 16, 2012, at 5:35 PM, sharpx2 wrote:

    If my 2012 Focus SEL is any indication, Ford's future should be bright. After many many years of buying BMW, Audi and VW cars, I found the Focus to offer far more content for far less money than any of the competition (I'm a sucker for things like rain-sensing wipers, dual-clutch 6-speed automanual transmission, leather interior, seat heaters, auto up/down windows all around and auto climate control.) Handling is great, and acceleration is surprising considering the high gas mileage.

    If they can apply the same innnovation and build quality (made in Dearborn, Michigan) across the line, there should be no stopping them.

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