Ford (F 0.58%) investors are cheering for the company's 2025 performance. Shares produced a monster total return of 42% last year. That was well ahead of the return of the S&P 500 index. There is some momentum working to the benefit of investors.
Is this auto stock a buy now?
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Cheap valuation and high dividend yield
The fact that Ford shares are cheap might introduce an enticing proposition for investors interested in this business. The stock trades at a forward price-to-earnings ratio of just 9.4, significantly below that of the overall market. Investors starving to find a good deal, especially those seeking a huge margin of safety, might take a closer look at Ford.
The business pays a quarterly dividend of $0.15. Due to the low valuation, there is a hefty dividend yield of 4.41%. Ford can perhaps be a top choice for income investors.
NYSE: F
Key Data Points
Investors should be skeptical of Ford being a high-quality investment opportunity
Ford has been around since 1903. It's an icon of American industrialism, employing 89,000 people domestically and showcasing to the world that it's a manufacturing juggernaut. However, that long history doesn't mean the stock is an automatic buy. It's easy to argue that Ford deserves its current valuation multiple.
The lack of meaningful growth is one key reason why. Ford's automotive revenue increased by only 32% between the third quarter of 2015 to Q3 2025 (ended Sept. 30). Passenger car sales volume in the U.S. has not trended much higher over the last 45 years. This is a very mature industry in terms of overall growth, even though electric vehicles have presented a changing dynamic in recent years. Investors should not expect outsized gains from Ford in the long run.
Ford's earnings are disappointing. On a quarterly basis, its operating margin averaged just 3.1% in the trailing-five-year period. Weak profitability is simply a nature of this industry, as companies are running with huge cost structures. Even worse is Ford's inability to show a cost advantage; sales slowly rise, but this hasn't helped margins expand over time.
The dividend yield might be high, but the durability of the quarterly payout is far from a sure thing. Demand for new cars can shift with the changing economic winds, mainly because this is a major purchasing decision for the average household. If the U.S. experiences a recession, Ford's revenue could decline.
Because the company's fixed expenses are so high, a drop in sales can result in net losses. It wouldn't be surprising to see the dividend temporarily suspended as management looks to save cash to keep things afloat until macro conditions improve.
Long-term investors looking to compound their capital will find it easy to pass on Ford stock.
