It's fairly rare for a company to suspend its dividend, which is generally a last-ditch effort to save a company that is bleeding cash. That was exactly the case at Ford (NYSE:F) during the dark days right before the recession forced two of its Detroit competitors into bankruptcy. Fast-forward to today, after a very impressive business turnaround and reinstated dividend, and the automaker is an often-overlooked dividend play with significant upside.

Graph by author. Source:

Here's why Ford's dividend strikes the right balance between sustainability, value, and growth potential -- and why 2014 could bring investors a buying opportunity.

How Ford compares
Ford' pays out $0.125 per share quarterly for a total $0.50 per share annually. At today's price that's a yield of roughly 3.2%, which compares favorably to dividend yields at Japanese rivals Toyota and Honda, which respectively check in at 2.2% and 1.2%. Ford's dividend trails crosstown rival General Motors' (NYSE:GM) yield of 3.6%, though. GM's rising yield is mostly due to the 20% slide in stock price this year following the massive recall debacle that has reversed the company's momentum.

Thus far, Ford's management has increased its reactivated dividend in a cautious and sustainable manner, which leaves potential upside. Ford's business is looking better by the day; last year's pretax profit was among the best in its history, with record automotive operating related cash flow. That makes 18 consecutive quarters of profitability accompanied by a strong surge in liquidity.

With Ford's business and balance sheet becoming more stable and profitable, its dividend payout ratio (dividends divided by net income) remains at a solid level. Ford's payout ratio is about 30%, which easily leaves room for increasing the dividend in the future. Here are a couple of factors that should enable Ford to increase its dividend faster, should it choose to do so.

Pension woes and Europe
Two of the biggest factors eating up Ford's net income and cash have been its losses in Europe and its underfunded pension plan. Consider that at the end of 2012 Ford's pension plan was underfunded to the tune of $18.7 billion -- a bigger obligation than its entire automotive debt! Interest rates that were near record lows required the company to increase its cash contributions into its pension fund: Ford dropped $8.4 billion into fund assets over the last two years.

As the automaker continued to dump extra cash into the fund, and interest rates crept up slightly, the pension's underfunded status dropped from $18.7 billion to roughly $9 billion at the end of 2013. That's a huge improvement. With those pension woes under control the company only plans to drop $1 billion into the fund's assets this year. That means billions of dollars will be available to direct toward growth purposes or dividend increases.

Losses in Europe have also been eating up Ford's bottom-line profit in recent years, but that too could soon change.

Graph by author. Source: Ford quarterly reports.

This chart shows that profits took a dive in the fourth quarter, mostly due to one-time charges and seasonality, but Ford remains very much on pace to break even, or perhaps turn a small profit, in Europe next year. That will send a surge to Ford's bottom-line profit, as the company has lost $3.3 billion in net earnings from European operations over the last two years alone.

With both Ford's pension plan and Europe operations burning less cash, management has the option to increase the dividend. Furthermore, because of the market's shortsightedness, 2014 could bring a buying opportunity.

Ford's very profitable F-150 is about to have an all-new 2015 model. Source: Ford

A building year
As the saying goes, the market is a voting machine in the short term, and a weighing machine in the long term. That means Ford's stock price could stall this year because the company has guided for lower pretax profit and margins in 2014 due to risings costs associated with accelerating launches of new or significantly refreshed vehicles.

Ford is taking on its most aggressive launch schedule to date; it is doubling the number of global new model roll-outs and tripling the number of launches, compared to last year, in its No. 1 market, North America. The ambitious launch schedule will eat into this year's profitability, which sent some investors to the door. However, long-term investors should remain optimistic that the new vehicles will set Ford up for global success throughout the rest of this decade.

Foolish takeaway
In addition to Ford's dividend being valuable and sustainable, and also having room to grow, the stock itself also has upside over the next few years. In 2013, Ford gained more market share in the U.S. than any other major automaker. The company continues to make huge strides in the world's largest automotive market, China, where it's on pace to double production capacity, market share, and sales from 2012 levels by next year. Also, consider that having a successful global luxury brand is essential in today's automotive industry and that Ford's Lincoln nameplate is finally gaining some traction in the early innings of its turnaround. Lincoln brand sales were up 31% in March, 36% for the first quarter, and 27% over the last six months.

Ford is on a roll. Its dividend and overall share performance have significant potential in the years ahead, and 2014 could bring a nice entry point if the market pulls back or if current investors aren't patient enough to stick around during its costly launch schedule.