Investors are hopping on board left and right to get shares of Ford (NYSE: F ) recently, and for good reason. Not only has the company completed one of the greatest business turnarounds in history, the automotive industry as a whole is rebounding quite nicely in the U.S. – where Ford derives nearly all of its profits. Recently I brought up two reasons for investors to love owning Ford stock, but I could think of plenty more. So, following that theme, here are two more great reasons to consider hopping on board the Ford bandwagon.
I think Ford is one of the best dividend stocks that everyone overlooks for a couple reasons. For one, it's rare that you can grab up a decent yield – around 2.5% as of this writing – with a company that is poised to grow its bottom-line profits so much over the next couple of years. Consider that by 2015 executives at Ford believe it will break even in Europe which would reverse losses of up to $2 billion – the expected loss for 2013. That amount will go directly to bottom-line profits, freeing up cash to be spent on either expansion in China, share buybacks, or dividends.
In addition to that, by 2015 Ford will have launched 15 new models into China in its aim to double its market share in the region. While this will have major costs up front, as the investment in China begins to slow Ford will see increased profits from the region more quickly – also freeing up profits and cash to be spent on a dividend increase.
If losses in Europe are reversed and China becomes more profitable as quickly as management expects, it would add billions to the bottom line. With a surge in profits that large, Ford could easily break through $20 a share. If it did hit that price, because of the surge in profits, it wouldn't surprise me to see Ford bump its dividend by as much as 50%, to around $0.60 annually – leaving it at a yield of 3%, a level I expect Ford to remain hovering around.
Ford may not do one large increase, but rather a set of smaller increases to be sure that it is sustainable – which is just good business practice. If we are to see Ford's dividend reach its potential, we'll need to see its vehicles have continued sales success overseas, as well here in the U.S. market. One piece of data that gives us confidence in that happening is a recent study by R.L. Polk.
No. 1 in loyalty
As any business student will tell you, it's easier and cheaper to retain customers rather than attract new ones. That's even more true in the highly loyal automotive industry, and the graph below shows why Ford investors can be optimistic about retaining future consumers.
In the R.L. Polk study, Ford is the only brand to break a loyalty of 60% and is clearly ahead of its competitors in bringing back its consumers when they begin shopping for a new vehicle. The reason Ford dominates this survey is because, as its crosstown rivals General Motors (NYSE: GM ) and Chrysler exited the recession by filing for bankruptcy, Ford was busy pouring cash into new designs that were aimed at growing vehicle segments. Years later, Ford's Focus, Fusion, Escape models have given consumers and investors reason to cheer and stick with the brand. Also, we can't forget that the ever-popular F-Series continues to be not just America's favorite truck, but also the country's all-around-favorite vehicle for over three decades, according sales figures.
Ultimately there are many reasons to buy into Ford. However, simply looking at these two factors, we can see that Ford is in good shape to retain its customers, continue growth overseas, and potentially use its rapidly increasing profits to reward investors with an increased dividend in the years ahead.
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