Ford (F 1.44%) stands alone among the Big Three automakers in not having to take a bailout from the federal government in the aftermath of the financial crisis. The success that Ford had in recovering without assistance allowed Ford to become the dividend giant of the U.S. auto industry, with the restoration of its dividend in early 2012 for the first time in more than five years marking a big step in its comeback. By contrast, neither General Motors (GM 2.23%) nor Tesla Motors (TSLA 0.96%) pays a dividend at all, and while General Motors could put itself in position to make a quarterly payout in the near future, Tesla has too much growth potential to consider returning any eventual profits to shareholders in the near future.
When Ford doubled its payout early this year, it got dividend investors used to the idea that the automaker would seek to return more capital to shareholders. As 2014 approaches, shareholders now wonder whether Ford is just beginning a trend of annual dividend increases that could eventually lead to a long track record of dividend growth. Let's take a closer look at Ford to see whether it's likely to raise its payout again when the New Year comes.
Dividend Stats on Ford
|
Current Quarterly Dividend Per Share |
$0.10 |
|
Current Yield |
2.3% |
|
Number of Consecutive Years With Dividend Increases |
1 |
|
Payout Ratio |
28% |
|
Last Increase |
January 2013 |
Source: Yahoo! Finance. Last increase refers to ex-dividend date.
Will Ford dividends drive higher?
Ford's success hasn't just come from its dividend. The stock has soared almost 75% over the past year as auto sales have picked up sharply, as model updates and innovative new offerings have created new excitement about automakers industrywide. General Motors has participated to a lesser degree in that success, with gains of more than 50%, and Tesla has taken off as its Model S sedan's launch has gone far better than many expected, pushing shares up sixfold since late 2012.
Nevertheless, Ford's third-quarter-earnings results show just how far Ford has come despite the strength of its competitors. Ford still relies on the North American market for most of its profits, and the company managed to sustain almost all of its $2.3 billion profit from the segment compared to the year-ago quarter despite seeing rising costs. Ford showed real success in Europe, cutting its losses in the long-suffering segment by more than half.
Ford also hasn't shied away from opportunities to come up with innovations that could drive future sales. It plans to release a natural-gas powered F-150 that could help more consumers take advantage of low natural gas prices to cut their fuel costs. Ford has had some success in the past with existing nat-gas versions of its larger F-250 and F-350 pickups, but bringing the option to the more popular F-150 will open up a whole new audience to the natural-gas fueled vehicle market. On the other side of the spectrum, the latest version of the company's Mustang muscle car could bring greater fuel efficiency while still offering the V8 power that customers will demand.
Indeed, one of the biggest threats to Ford comes in part from its own success. As sales have grown, suppliers have suddenly found themselves straining to meet Ford's demand for parts and components. To respond, the automaker will have to ensure that it gets the parts it needs without letting its suppliers let quality deteriorate just to meet their quotas. That's a problem that General Motors will likely share, given its own strong growth, but it highlights an issue where the smaller Tesla could gain in quality perception if Ford and GM aren't careful to sustain quality.
Ford Dividend data by YCharts. Note: Chart inaccurately depicts suspension of dividend from late 2006 to early 2012.
This chart fails to reflect the complete elimination of the dividend from late 2006 to early 2012, but it does show just how much higher Ford's dividend was before it started running into trouble in the early 2000s. Now that profits are back up, Ford could sustain a higher dividend payout without taxing its overall cash flow too much, especially given that its current dividend makes up less than 30% of its trailing earnings.
When will Ford boost its payout?
Ford declared its fourth-quarter dividend earlier this month, keeping it at $0.10 per share. That will mark the fourth-straight quarter at that level, and leaves open the possibility that the company could once again boost its payout at the beginning of 2014.
Ford could raise its dividend by another nickel per share and still keep its payout ratio below 50%. The resulting yield boost to nearly 3.5% would make it an impressive player in the dividend industry and also mark the company's confidence in its future growth.
Of course, Ford's investors are just as interested in making sure the automaker can driving its share price higher. If sales continue to grow, then Ford shares could easily outpace its dividend growth in the long run.
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