One of the biggest draws of owning shares of Ford Motor Company (F 3.44%) is the Detroit icon's robust dividend, which currently sits at a yield of 5.2%. Currently, Ford is maintaining its dividend, but several factors have led analysts to predict that a dividend cut is a distinct possibility.
Let's take a look at factors weighing against Ford, and what's likely to happen to the dividend.
Tariffs take a toll
Not only is Ford contending with internal issues such as quality concerns and associated warranty costs, which were on the rise again during the second quarter, denting the bottom line, but it's also dealing with the impact of tariffs. Ford announced in July that tariffs would ding the company about $2 billion on its pre-tax earnings, which was an increase from the prior $1.5 billion estimate.
Image source: Ford Motor Company.
To put it in perspective, Ford is on pace to pay out $0.75 per share in dividends for 2025 -- that's Ford's base quarterly payout plus its $0.15-per-share supplemental dividend paid in March. Ford's strategy is to dish back 40% to 50% of adjusted free cash flow to shareholders in the form of dividends.
That's where things could get a little concerning for investors worried about a dividend cut. During the first half of 2025, Ford paid out $600 million for its supplemental dividend and an additional $1.2 billion for its two regular quarterly dividend payments. Add another $600 million for the third and fourth quarters, and Ford's looking at paying out roughly $3 billion in dividends this year. Meanwhile, in part thanks to tariffs, Ford's adjusted free cash flow is expected to be between $3.5 billion and $4.5 billion for the year -- a payout ratio of roughly 86% at the low end of guidance.
Cause for alarm?
As a snapshot in time, that payout ratio would raise a red flag and is easily outside Ford's desired range. But we have to remember that the first quarter was lackluster with a lot of moving parts, and that Ford's adjusted free cash flow was $6.7 billion in 2024, much higher than this year's forecast. In fact, Ford's adjusted free cash flow rebounded to $2.8 billion during the second quarter alone. The $6.7 billion annual figure is likely closer to results as Ford works to offset the impact of tariffs through lowered costs and operating efficiencies.
There certainly are instances when Ford has had to take major steps and suspend its dividend. Two of the more recent examples were during the financial crisis almost two decades ago and during the COVID-19 pandemic. But there are a few reasons Ford won't be so keen to cut its dividend.
One reason is simply Ford's balance sheet, which boasts over $28 billion in cash and $46 billion in liquidity at the end of the second quarter. Ford has ample cash and liquidity to invest in growth opportunities regardless of the economic climate, and can fund its dividend and other expenditures during a bumpier short-term ride.
Another reason, which some investors aren't aware of, is that the Ford family loves their dividends. Ford has a dual-class share structure where Ford family members own Class B shares with 40% voting rights, even at only 2% of shares outstanding. Those dividends paid the Ford family members $55 million in 2024, and are likely something the family would prefer to keep stable.
Lastly, don't underestimate the power of competition between Ford and cross-town rival General Motors (GM 3.17%). Remember that in February, GM actually increased its dividend by $0.03 per share, as well as a new $6 billion share repurchase authorization. Could Ford swallow the optics of cutting its dividend while a competitor is sending more value to shareholders?
Will Ford cut its dividend?
Many analysts are concerned about Ford maintaining its dividend in the near term, and there's certainly reasoning behind those concerns. However, my personal opinion is that Ford will choose to project confidence and strength in its ability to offset tariff impacts going forward, improve the profitability of its Model-e division -- the division responsible for its electric vehicles lost $5.1 billion in 2024 -- and continue generating higher-margin business from its Ford Pro division, which is responsible for its commercial business. Ford can bank on its solid balance sheet in the near term if it needs to. I'm sure the family won't mind.
