Car manufacturers surprised industry analysts by posting stronger-than-expected sales in December to finish out the year with a gain. The good times aren't expected to continue into 2019, however, as rising prices, new tax laws affecting refunds that typically go toward purchasing a new car, and rising interest rates dampen demand.

Toyota (NYSE:TM) and Ford (NYSE:F) weren't beneficiaries of the late-season sales push, as both automakers were among those that still saw sales dip at the end of the year. Ford was down 10%, while Toyota fell 1%, even though the latter has the most popular car on the market, the RAV4, and four out of the top 10 best-selling cars.

Two Toyota RAV4's alongside a river

The Toyota RAV4 was a top seller in 2018. Image source: Toyota.

To determine whether Toyota or Ford is a better buy for the future, let's look at how they stack up on some key measures.

Stock performance and valuation

Both manufacturers suffered double-digit declines in their stock price over the past year, though Ford's 21% plunge was nearly twice that of Toyota's, even if that amounts to something of a Pyrrhic victory for the Japanese car company. Neither was a good bet last year, not when the S&P 500 was losing only 4%.

F Chart

F data by YCharts.

Surprisingly, however, Ford is valued at a slight premium to Toyota, General Motors (NYSE:GM), and Fiat Chrysler (NYSE:FCAU). Where the U.S. carmaker goes for nine times trailing earnings, Toyota and Chrysler are valued at seven times earnings, and GM goes for six times its profits over the last 12 months. On a forward basis, they're all pretty much in the same spot.

Check out the latest Ford earnings call transcript.


Both Toyota and Ford pay dividends, but the similarities end there. Their differences are wide enough to drive a crossover vehicle through.

Ford follows convention and pays shareholders $0.60 per year, with the payout currently yielding 6.9% annually. Toyota, on the other hand, pays investors $3.52 per year, but does so biannually, with a yield of 2.9%.

Ford also pays an occasional special dividend, but after three straight years of paying one in January, the automaker didn't do so this year. That doesn't mean its dividend is in jeopardy, and CEO Jim Hackett said in October that the company was committed to paying the regular dividend.

But Ford's payout ratio of around 60% tends to be on the high side, and that may limit the automaker's ability to raise the dividend. Conversely, Toyota's payout ratio of 26% leaves plenty of room for growth, though it also suggests the company isn't being nearly as generous with shareholders as it could afford to be.

Opportunities and risk

Although Toyota and Ford are pursuing greater profitability through strategies that are sometimes similar in nature -- both plan to build vehicles based on just a few platforms to save costs and both are experimenting with car rental services -- Ford's vision is dramatically different: It plans to stop selling sedans in North America altogether, leaving just the Mustang and a new crossover, the Focus Active. Instead, it will focus on SUVs and pickup trucks. The F-150 continues to be the best-selling vehicle in all categories.

 While crossovers have become the vehicle of choice for most car buyers, and they dominated the best-selling car list again last year, not offering any sedans other than the iconic muscle car seems like a move Ford may regret. Cars still represent about a quarter of the vehicle market, and will be an important component for for years to come.

Toyota's growth plans are much more conservative, such as pursuing cost reductions and increasing the speed that it's able to bring new models to market, which has contributed to the Japanese automaker remaining solidly profitable.

The better choice

Toyota looks like the safer bet here. It's one of the leading automakers in the U.S. that sells some of the most popular cars on the market today, and one of the world's biggest. Like Ford, it is still coming to grips with a changing auto market, and both will be trying to straddle the slowing industry forecasts.

But while a turnaround at Ford could yield bigger returns, eliminating all its sedans in its home market is a risky strategy. Hackett says Ford is losing money on its cars, but that kind of thinking a decade ago when gas prices were soaring would have resulted in it doing away with its light duty trucks and SUVs that it's now going all in on.  Investors would do well to wait and see whether this plan can really pay off.

On the other hand, Toyota -- with its greater profitability, more secure dividend, and a growth initiative that doesn't throw out an entire segment of its business -- seems like the better play here.