Ford Motor Company’s Dividend Yield Nears 7% on Share Price Decline (F)

Ford Motor Company (NYSE:F) continues to grow its dividend distributions even as the company’s share price decline drove the dividend yield towards 7%.

Ford Motor Company has not reduced its total annual dividend payout over the past six consecutive years. Instead, the company decided to pay a special dividend in each of the past three years and currently offers a best-in-class 6.8% dividend yield. Additionally, the company’s 43% dividend payout ratio seems to indicate that the dividend distributions are sustainable and well-covered by the company’s earnings.

However, the movement of the company’s share price paints a completely different picture. The share price has lost 50% of its value over the past five years. Furthermore, the share price has dropped more than 25% over the past 12 months, While the combined total loss over the past three and five years has exceeded 25%, more than 80% of those losses – 21% – occurred over the past 12 months.

Out of the Big Three U.S. car manufacturers, the Ford Motor Company was the only one that avoided a major restructuring during the 2008 financial crisis. On the other hand, General Motors Company (NYSE:GM) emerged as a new entity from the government financed Chapter 11 bankruptcy proceedings in 2009. Meanwhile, Chrysler ultimately became a subsidiary of the Fiat Chrysler Automobiles N.V. (NYSE:FCAU) after a series of ownership transactions during the transition period which included partial ownership by the United Auto Workers pension fund, Fiat S.p.A., as well as the U.S. and Canadian governments.

While Ford’s truck lineup has continued to top market sales and generate significant profits, the company has not introduced any new car models. In fact, Ford announced during its Q1 earnings call that it will phase out almost all car models from its U.S. market lineup within the next two years. The only two car models scheduled to remain are the legendary Mustang nameplate and the new Focus Active model, which will join the lineup in 2019.

Instead, Ford plans to generate a significant share of its revenue growth from expansion in the Chinese market. Over the next seven years, enhance or launch 50 models in China. However, the Chinese automotive market has been recently declining and Ford’s sales have been down 30% for the first three quarters of 2018.

The company will announce its third quarter results on October 24, 2018 In the previous quarter, the company missed analysts’ earnings estimates by 13%. However, the next quarter’s current estimates are only 7.4% above the previous period’s actual earnings and more than 18% below what they had been during the same period last year.

Therefore, investors who see the current share price drop as a buying opportunity could collect the 6.8% dividend yield on the December 3, 2018, pay date by taking a long position prior to the company’s next ex-dividend date on October 22, 2018.

Ford Motor Company (NYSE:F)

Based in Dearborn, Michigan and founded in 1903, the Ford Motor Company designs, manufactures and markets cars, trucks, sport utility vehicles (SUV’s) and electrified vehicles under the Ford, Lincoln and Troller brands. Additionally, the company’s Financial Services segment offers various automotive financing products for its automotive dealers and customers. The company also develops new automotive technologies through strategic partnerships with the Panasonic Corporation of North America and Qualcomm Technologies.

The $8.81 share price as of closing on October 15, 2018 is only marginally above its 52-week low closing price of $8.64 on October 12, 2018. The last time that the share price traded at similar levels was in November 2009. Over the past 12 months, the share price lost 27.3%, which translated to a 20.9% total loss, despite a strong regular dividend and one special dividend payout in March 2018.

Instead of increasing its regular dividend amount, like it did from 2013 to 2015, the company maintained a $0.15 quarterly payment over the past 12 quarters and supplemented this regular dividend with special dividend payouts over the last three years. The current regular dividend of $0.60 per year corresponds to a 6.8% dividend yield, which is 21.6% above the company’s own five-year average dividend yield. Including the $0.13 special dividend from March, the effective dividend yield for 2018 increases to 8.3%. Even with no dividend growth over the past three years, the company tripled its total annual distribution since 2013, which converts to an average growth rate of more than 20% per year.

Additionally, the company’s regular dividend yield of 6.8% outperformed the 2.13% average dividend yield of the entire Consumer Goods segment and the 1.54% average yield of the Major Automotive Manufacturers industry segment by 290% and 440%, respectively.

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