Ford Motor Company (NYSE:F) has been a dividend-paying stock since fiscal 2012 and the company pays cash dividends on a quarterly basis.
Therefore, Ford’s common stock shareholders will receive a quarterly cash dividend on the company’s common stocks.
However, Ford drastically reduced its cash dividends between 2020 and 2021 when the COVID-19 pandemic hit the automotive industry badly.
Here is an excerpt extracted from Ford’s 2020 annual filings regarding its dividend suspension policy:
Ford Motor only reinstated the dividend in 4Q 2021 when the businesses and fundamentals of the company recovered in a post-pandemic world.
This article delves into Ford Motor’s dividends and discusses the advantages and disadvantages of the company as a dividend payer.
Let’s dive in!
Ford’s Supplemental Dividends
One thing I like about Ford Motor being a dividend-paying stock is the supplemental dividends.
Ford Motor has no qualms about declaring a special dividend when the business is good.
For example, Ford Motor declared a supplemental cash dividend in Feb 2023 which totaled a massive $0.65 per share as shown in the chart above, possibly the largest ever being declared in the past 30 years for the company.
I supposed this special dividend is to make up for the loss of dividends in 2020 and 2021.
As mentioned, Ford Motor suspended several quarters of cash dividends between 2020 and 2021.
It only reinstated the cash dividends by the end of 2021 when the business outlook improved.
Subsequently, Ford Motor made massive profits and generate tonnes of cash in 2022.
Therefore, Ford Motor rewarded patient shareholders with a special dividend in 2023.
As a result, the estimated total cash dividends for 2023 may come in at $1.25 per share.
Your dividend yield may come to a massive 10.5% if you had bought Ford’s stock at $12 per share.
While Ford has only declared a special dividend in the last 5 years, it had actually done so several times before that.
For your information, Ford declared multiple supplemental dividends in the past, namely in 2018, 2017, and 2016, respectively.
Again, Ford Motor will have no qualms in rewarding shareholders with supplemental dividends when the company makes money.
Therefore, being a shareholder, you can expect a surprise from Ford Motor in the form of supplemental dividends apart from the regular cash dividend being declared on a quarterly basis.
Ford’s Growing Vehicle Average Sale Price (ASP)
The second most important feature of Ford Motor being a dividend payer is the growing vehicle average sales price.
As shown in the chart, Ford Motor’s vehicle average sale price (calculated based on the wholesale volume) has been on a rise, topping a record high of $40,000 USD per vehicle as of 2022.
The rising ASP is important for Ford Motor being a dividend-paying stock as it shows that the company has the competitive edge to increase sale prices.
For example, Ford Motor has managed to increase its ASP by a massive 33% in just 4 years since 2019 as shown in the chart above.
Apart from just the margin and profitability, the ability to raise sale price also shows that Ford Motor has the moat and brand power to remain competitive in the automotive space.
Despite the growing sale prices, consumers still stick with Ford’s products.
When all these factors play out nicely with each other, shareholders will be rewarded with not only capital appreciation in stock prices but also cash dividends as well as share buybacks.
Therefore, Ford’s stockholders should be able to sleep well at night knowing that the streams of dividends will continuously be coming in.
Again, if Ford Motor had not been able to raise the vehicle sale price over the years, your cash dividend would most likely be gone by now.
Ford’s Competitive Position In The Truck And SUV Market
Another factor that makes Ford Motor a good dividend-paying stock is the company’s competitive position in the truck and SUV market in the U.S.
For instance, Ford Motor has been able to sell a whole lot of trucks and SUVs in the U.S.
This trend is reflected in the growing percentage of Ford’s truck and SUV sales to the total wholesale figure as shown in the chart above.
As seen, the ratio has been on the rise in the last 5 years, growing from 82% reported in 2018 to a massive 98% as of 2022.
Therefore, most of Ford’s vehicle wholesale came from trucks and SUVs and nearly the entire sales came from trucks and SUVs alone as of 2022.
At the same time, Ford Motor has been able to maintain its market share in the U.S. at relatively the same figure all these years.
More importantly, this trend is likely to continue in the future considering that Ford Motor has been able to increase its vehicle ASP which we saw earlier while maintaining its market share in the U.S.
Why is this important for dividend investors?
The reason is that trucks and SUVs are the most profitable products for Ford Motor.
Here is a quote extracted from Ford Motor’s 2022 annual report regarding truck and SUVs profitability:
Therefore, it is important for Ford to focus on trucks and SUVs and to be able to maintain its competitive position in the U.S.
In return, Ford Motor will be able to maximize its profit from the sales of trucks and SUVs.
Inherently, this will translate to greater profit and cash flow and thereby, the continuous streams of cash dividends from Ford.
Ford Is A Profitable Company
Ford Motor is a profitable company and can make serious money during not only good times but also bad times.
Therefore, Ford can definitely afford a dividend payout.
As shown in the chart above, Ford’s adjusted EBIT has been positive even during the COVID-19 pandemic period.
More importantly, Ford made significantly more profit in a post-pandemic world, at roughly $10 billion per year in adjusted earnings before interest and taxes since 2021.
And, Ford guided for roughly the same profitability in fiscal 2023, also at $10 billion in adjusted EBIT which is quite significant by all accounts.
Therefore, Ford should be able to cover the 2023 dividend estimate without any issues and may even raise the payout in 2023.
Here is a table that shows Ford Motor’s dividend payout ratio with respect to the adjusted earnings:
Dividend Payout Ratio As At The End Of The Financial Year
|Fiscal Year||Adjusted EBIT ($ Millions)||Adjusted EBT ($ Millions)||Dividend Payments ($ Millions)||Dividend Payout Ratio|
|2023 estimate (with special dividend)||$10,000||$8,430||$5,000||59.3%|
|2023 estimate (without special dividend)||$10,000||$8,430||$2,400||28.5%|
As shown in the table above, Ford’s dividend payout ratio is estimated to come in at 59% and this ratio has already included the supplemental dividend declared in Feb 2023.
Without the supplemental dividend, the dividend payout ratio will only be about 28%, a much smaller ratio and Ford can definitely afford it.
Again, Ford Motor is a profitable company and can more than enough cover the estimated cash dividends in 2023.
Ford Is Cash Flow Rich
Aside from being profitable, Ford Motor also is cash flow rich.
As shown in the chart above, Ford’s automotive segment has been able to generate positive free cash flow even during the COVID-19 pandemic period.
And, Ford’s adjusted FCF came in even more in a post-pandemic period, totaling nearly $10 billion in 2022.
The estimated adjusted FCF is $6 billion for fiscal 2023, still a significant figure despite being lower than that of 2022.
With the huge free cash flow, Ford should have no problem covering the cash dividend payments.
The table below shows Ford Motor’s dividend payout ratio with respect to free cash flow:
Dividend Payout Ratio As At The End Of The Financial Year
|Fiscal Year||Adjusted FCF ($ Millions)||Dividend Payments ($ Millions)||Dividend Payout Ratio|
|2023 estimate (with special dividend)||$6,000||$5,000||83.3%|
|2023 estimate (without special dividend)||$6,000||$2,400||40.0%|
As seen, Ford Motor’s dividend payout ratio came in at only 22% in 2022 and is estimated to be 83% in 2023 when supplemental dividends are included.
Without the supplemental dividend, Ford’s dividend payout ratio is only at 40% which means the company has more than enough cash to cover the cash dividends.
Again, Ford Motor is cash flow rich and can generate enough cash not only for a supplemental dividend but also for regular dividend payments.
Ford Is Low In Debt
Ford Motor is moderately leveraged as shown in the chart above.
Some critics have argued that Ford carried a massive debt which amounted to more than $100 billion.
While Ford’s total debt is huge, topping a massive $140 billion as of Q4 2022, the actual debt is a lot lower.
The actual debt here refers to Ford Motor’s unsecured debt which is not backed by any collaterals.
Therefore, the majority of Ford’s debt consists of secured debt that is backed by collaterals such as leased vehicles and loans which generate healthy cash flow, according to this article – Ford Total Debt.
In terms of Ford’s unsecured debt, the leverage ratio totaled only 200% or 2X of the company’s equity as of Q4 2022 which in my opinion, is quite reasonable.
More importantly, the leverage ratio also has been on a decline since 2017 as shown in the chart above which shows that management uses debt cautiously.
In addition, Ford’s unsecured debt represented only 34% of the company’s total assets as of 4Q 2022, a record low in the past 7 years.
Similarly, this ratio also has been on a decline, illustrating the decreasing debt leverage with respect to assets.
Therefore, Ford Motor’s shareholders should be glad to know that the company has a healthy debt level that isn’t getting out of hand and threatening the dividend payments.
Disrupted Profitability And Cash Flow
While Ford Motor has been a profitable company and cash flow rich all these years, it is still susceptible to an economic downturn and any black-swan event such as the COVID-19 pandemic.
As seen in the chart above, Ford Motor’s profitability and cash flow can be seriously disrupted and dive badly during an extremely negative phenomenon such as the COVID-19 pandemic which started in 2020.
In 2020, Ford Motor’s adjusted EBIT and FCF totaled only $2.5 billion and $652 million, respectively, a record low since 2016.
In the future, Ford can similarly be impacted by the same event or any other event that can disrupt economic activities.
Therefore, dividend investors need to be aware that Ford Motor may not be as tough as they think and any event that triggers an economic disaster on a global level can disrupt the dividend payments as what happened in 2020.
Apart from the dividend suspension, Ford’s stock price was also impacted in 2020 and it almost became a penny stock during the onset of the COVID-19 pandemic.
Again, Ford Motor’s profitability and cash flow are subject to the performance of the economy and any black-swan event can seriously disrupt the company.
Ford Dividend Suspension
As discussed in prior paragraphs, Ford Motor suspended several quarters of dividend payments in 2020 and 2021 and only resumed the dividends back by the end of 2021.
As a result, Ford’s cash dividends decreased to only $0.15 and $0.10 USD per share in 2020 and 2021, respectively.
The dividend suspension came during the onset of the COVID-19 pandemic which disrupted Ford’s automotive operations badly.
Similar to profit and cash flow, Ford Motor’s cash dividends also are susceptible to a cut or suspension during an economic downturn or any events that can disrupt economic activities.
Therefore, investors need to know that Ford Motor’s dividends are vulnerable to external impacts and the dividends can come to a complete stop in extreme conditions.
Unlike some companies such as Altria Group and Philip Morris International whose dividend payments still continued and even increased despite the economic disruption triggered by the COVID-19 pandemic, Ford Motor’s business model may not be as tough and strong as you have expected.
Therefore, Ford Motor’s cash dividends are vulnerable to not only external factors but also competition within the automotive industry.
If Ford’s market share has been slowly taken away by competitors, the dividends will most likely be gone too.
To recap, Ford Motor is a good dividend-paying stock because of several reasons.
Firstly, it will not hesitate to declare a supplemental or special dividend when the outlook is good like what happened in 2023.
Secondly, Ford has been able to raise its vehicle average sale price over the years, illustrating the competitive advantage of the company.
Third, Ford has been able to increase the sales of trucks and SUVs in the U.S., thanks to its competitive position in the truck and SUV market in the U.S.
Next, Ford is profitable and cash flow rich.
It can be highly profitable and generates tonnes of free cash flow during good times, which means a greater and fatter dividend payout.
Lastly, Ford is low in debt leverage and its unsecured debt constitutes only 2X of its equity.
On the other hand, Ford Motor has several disadvantages being a dividend-paying stock.
Firstly, Ford Motor’s business model is highly vulnerable to external factors, including an economic downturn and black-swan-type events such as the COVID-19 pandemic.
Therefore, its profitability and cash flow can sink badly during bad times such as what happened during the COVID-19 disruption in 2020.
Secondly, Ford would cut or even suspend the cash dividend payments totally as a result of the decrease in profit and cash flow.
In short, Ford Motor can be extremely generous to shareholders when business is good but would immediately suspend all capital returns to shareholders during bad times.
References and Credits
1. All financial figures in this article were obtained and referenced from Ford Motor’s quarterly and annual reports which are available in the following link: Ford’s Financials and Filings.
The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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