Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Ford Motor Company Takes Another Step to Return More Value to Shareholders

Ford headquarters. Source: Ford Motor Company.

Ford Motor Company's (NYSE: F  ) stock price has been stagnant this year as short-term investors headed toward the door after 2014 was labeled a building block for a stronger business in 2015 and beyond. Ford's turnaround since the recession has been nothing short of impressive and will be discussed in business classes in the decades to come, and despite the stagnant stock price recently, the folks at the Blue Oval continue to return value to shareholders.

Ford has accomplished this mainly through its reinstated dividend, but yesterday, it made an additional move to return value to shareholders: share repurchases.

Share buyback
Ford recently reported that its automotive operating-related cash flow reached $1.2 billion in the first quarter with its automotive gross cash topping $25 billion. Ford's automotive gross cash also exceeds its automotive debt by nearly $10 billion, and its automotive liquidity improved to $36.6 billion.

As Ford continues to improve its cash generation, it has been able to take further actions in reducing its automotive debt, increasing its dividend, and now buying back shares.

Ford announced it will repurchase up to 116 million shares of Ford common stock, which is worth roughly $1.8 billion. Ford's share repurchases will offset the effect of potential conversions of the company's 4.25% senior convertible notes due Nov. 15, 2016 as well as share-based employee compensation granted this year. This move will reduce Ford's diluted shares by about 3% and will have a small effect on increasing earnings per share.

"These actions are consistent with our overall capital strategy to take anti-dilutive actions and position ourselves to further reduce Automotive debt," said Bob Shanks, executive vice president and CFO, in a press release. "The strength of our cash generation gives us confidence to take these actions to enhance shareholder returns..."

While Ford's announcement is clearly a positive one, it's not a large enough buyback to merit an increase in fair value estimates. That said, I believe this could set the stage for the company to announce larger buybacks in the future, as I believe Ford's stock remains undervalued, and its automotive liquidity is very strong.

In addition to its recent share repurchase announcement, Ford continues to grow its dividend, which also returns value to shareholders.

Graph by author. Source:

Ford's dividend pays out $0.125 per share quarterly for a total of $0.50 per share annually. At today's price, that's roughly a yield of 3.1%, which compares very favorably to Japanese rivals Toyota and Honda, which check in at around 2.2% and 1.2%, respectively. Ford's dividend yield trails only cross-town rival General Motors, but that's mainly because GM's stock has suffered a pullback in its stock price amid its massive recall debacle this year.

Foolish takeaway
Ford is tackling its most aggressive vehicle launch schedule in company history this year, which will set the company up for much stronger top-line revenue growth throughout the rest of this decade. Looking at Ford's bottom line, the automaker is expanding aggressively in the world's largest automotive market, China, and remains on track to reverse billions of losses in Europe next year.

Ford's dividend payout ratio is only about 30% of net income, which easily leaves room for increasing the dividend in the future. That's especially true as its operations become more profitable overseas. Ford's recent share buyback announcement could be just the beginning of management's ability to return more value to shareholders via an increasing stock price, dividend, and share buybacks.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2949574, ~/Articles/ArticleHandler.aspx, 9/4/2015 4:17:07 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Daniel Miller

As a Motley Fool Industrial Specialist, I use my marketing and business background in the automotive industry to evaluate major automakers and other large industrial corporations. Follow me on twitter for tweets about stocks, cars, sports, and anything I find amusing.

Today's Market

updated 7 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:00 PM
F $13.84 Down -0.03 -0.22%
Ford CAPS Rating: ****