When you think of excellent dividend stocks, you might not initially think of the highly competitive and capital-intensive automotive industry. But if you skipped right over the automotive industry, you might miss one of the most no-brainer dividend stocks heading into 2024.
Between supplemental dividends, a yield topping 5%, potential catalysts, and even the Ford family having skin in the game, Ford Motor Company (F -0.48%) is an excellent dividend stock. Let's dig in.
Skin in the game
One of the most overlooked positives in owning Ford's dividend is that the family is actually on your side! Bill Ford himself joked about it years ago during a Ford conference call when asked about Ford's dividend payout: "Why is the company so stingy with paying dividends?" Bill Ford read during the webcast meeting. He joked: "Was that sent in by a member of the Ford family?"
But the truth is that the founding Ford family has a lot of skin in the game, and the dividend pays over $40 million in annual income to owners of the Class B stock, which only Ford family members can hold (and which also gives special voting rights and control over the company).
It's not an exaggeration to say that the Ford family itself would love more attention to be paid to the dividend, and that's great news for income investors owning Ford shares.
Special dividends
Not only does Ford have a long history of dividend payouts and increases, the company is also not shy about dishing out supplemental dividends to investors. For example, early in 2023 the company was paying $0.15 quarterly for its dividend, and also declared a supplemental dividend of $0.65 per share -- a welcomed boost.
The special dividend was paid out based on strong cash flow, but also monetization of the company's stake in Rivian, which it had sold off at a pretty handsome profit after the two automakers decided to end their partnership before ever collaborating on a vehicle as originally intended.
High yield and opportunity
Let's also talk about timing. While it is normally a frowned-on idea -- and true, nobody should try and time investments in the broader market -- it's also fair to say that Ford's cheap value offers not only a high dividend yield, but also a great buying opportunity.
Ford's dividend yield currently sits at a juicy 5.61%, and that's largely because the stock has consistently declined from just over $15 in late June. That puts its price-to-earnings ratio at a modest 7 times earnings. No matter how you slice it, there's little argument against Ford being cheap and offering a solid dividend for income investors right as we head into the giving season.
Cash burn to cash flow
If investors are saying to themselves "this sounds good so far, but is there a catalyst for dividend increases?", then look no further. Consider that the automotive industry is in the very early stages of transitioning to electric vehicles (EVs), and Ford is currently burning cash at a rapid rate to produce EVs.
In fact, Ford lost an estimated $32,350 on each of the 36,000 EVs it delivered to dealers during the third quarter, which was even higher than what it lost per EV during the second quarter. Further, Ford's nine-month loss for its EV business unit checked in at a staggering $3.1 billion, and its full-year estimate is a pre-tax loss of roughly $4.5 billion.
The catalyst is that Ford anticipates to fairly quickly turn this cash-burning operation into cash flow. Ford management expects a drastic turnaround in its Model e business unit and for it to be solidly profitably by the end of 2026. Here's a step by step EBIT-walk for how the automaker expects to generate 8% margins in roughly 3 years.
Image source: Ford Motor Company investor presentation.
No-brainer dividend stock
As we head into the holiday season, consider Ford and its dividend an early Christmas gift. With the stock price cheap, the dividend yield high, the Ford family having a vested interest in a consistent, increasing, and healthy dividend, and a catalyst for more cash to be potentially poured into the dividend payout, Ford is pretty clearly a no-brainer dividend stock heading into 2024.
