Dividend stocks are a great tool for investors to build long-term wealth in the market. Reinvesting these dividends uses the power of compounding to help generate even more wealth over time. Ford Motor Company's (F -1.39%) dividend is lauded for its yield that currently tops 4%, as well as the company's consistent supplemental dividends it often dishes out as a bonus payment to investors.
Let's take a look at a recent example of why these supplemental dividends are powerful and why they could be in danger in the near term.
Remember Rivian?
A great example of how lucrative these supplemental dividend payments can be happened in 2023. Originally, Ford had invested in young start-up electric vehicle maker Rivian, with plans for the two to collaborate on a shared platform.
Image source: Ford Motor Company.
Later on, the plans were eventually scrapped, and each automaker went its own way. When Ford sold its investment stake in Rivian, it drove a significant boost in the company's cash flow, which it distributed through its dividend. Remember that Ford aims to return 40% to 50% of its free cash flow to investors via the dividend. That scenario led to Ford dishing out a significant $0.65 per share special dividend in 2023, on top of its regular quarterly dividend payment of $0.15 per share.
In more recent years, Ford's annual supplemental dividend has been roughly one extra quarterly payment, give or take a few pennies. It's a nice boost on top of an already highly valuable dividend yield. Unfortunately, due to some unforeseen circumstances, Ford's supplemental dividend could be on the chopping block this year.
NYSE: F
Key Data Points
What's going on?
Ford is dealing with a couple of outside factors weighing on its financials. In fact, Ford previously noted that while its underlying business was performing at the high end of previous guidance, it was incurring a $1 billion net tariff headwind as well as an additional $1 billion headwind between 2025 and 2026 from the Novelis supplier fire.
Ultimately, while Ford has dished out a supplemental dividend three years running, the company's slowing cash flows will likely end that streak. In fact, Ford recently announced a massive pivot away from EVs that will cost the company a $19.5 billion charge with $5.5 billion in cash incurred over the next two years.
Dividend stocks historically outperform non-dividend-paying stocks, and income investors can still find immense value in Ford's traditional 4.2% dividend yield, but don't count on supplemental dividends in the near term.
