There are only a handful of iconic car manufacturers, and Ford Motor Company (NYSE: F) is certainly on the shortlist with its familiar Blue Oval brand. For dividend investors, the Detroit automaker offers an attractive stock, with a 12% share price decline in the past year, and a price-earnings ratio of 11. It has some solvable problems, a lot of cash and a dividend policy that often includes special dividends.
Here are a few more reasons why Ford is a great dividend stock.
Headwind that can be remedied
One of the first headwinds Ford must address is China. The automaker has been losing sales steadily in recent years as it has failed to keep up with the rapid adoption of electric vehicles (EVs). As of July, more than half of new passenger car sales in China were EVs. In 2016, Ford sold 1.3 million vehicles in China, and by 2022, that number had fallen to under 500,000.
With underfilled production capacity, declining sales and no way to turn the country into a second pillar of profit as once expected, Ford has a problem to solve. The company is thinking a little outside the box, but its strategy of exporting vehicles from China is ramping up. Last year, Ford shipped more than 100,000 vehicles from China, a record high. In the first half of 2024, Ford’s exports to China are up 45% year-over-year, reaching 75,000.
In China it may be a temporary solution now, but Ford is moving in the right direction and eventually China will no longer be a headwind, anyway.
Another major headwind for Ford will require a little more patience. The Model E division, which is responsible for electric vehicles, could lose up to $5.5 billion in 2024 alone. Ford has rushed to refocus its EV strategy, including delaying or canceling up to $12 billion in EV investments to try to offset losses and better align its product offerings with consumer demand.
It will take time to turn the Model E into a profitable division, and Ford still has a lot of work to do to bring down the price of batteries and other components. For now, the company has made a big bet on a low-cost platform with a $25,000 price tag to entice mainstream consumers — but whether it will ever be profitable is anyone’s guess.
Enough money
Those are two big headwinds for Ford, and the good news is that both are resolvable over time, freeing up valuable capital that could potentially be devoted to dividends. Regardless of the losses incurred in the Model E division and the problems in China, Ford has a strong balance sheet, lots of cash and liquidity, and a thriving, high-margin Ford Pro business.
Ford printed $3.2 billion in adjusted free cash flow in the second quarter alone, despite a balance sheet of nearly $27 billion in cash and about $45 billion in liquidity. A driving force behind those results is Ford’s booming Ford Pro division, which generated nearly $2.6 billion in earnings before interest and taxes in the second quarter, more than double that of its traditional Ford Blue business, which generated nearly $1.2 billion — and far better than the Model e’s $1.1 billion loss. Even better, Ford Pro’s EBIT margin came in at 15.1% in the second quarter, compared to Ford Blue’s 4.4%.
Why Ford is a Great Dividend Stock
Investors should also consider the Ford family, who are known for their love of dividends. The Ford family owns a special set of shares that have special voting rights and dividends, and for that reason the company has always focused on returning value through dividends rather than share buybacks. Ford also isn’t shy about issuing additional and special dividends when it has extra cash, as it did when it sold its stake in Rivian and offered investors a juicy $0.65 per share special dividend.
Ford offers a great opportunity for income investors. It’s an iconic brand with shares that trade cheaply, a dividend that’s likely to grow as headwinds abate, a high-margin Ford Pro business, and a 5.5% dividend yield. That’s why Ford is a great dividend stock.
Should You Invest $1,000 in Ford Motor Company Now?
Before you buy Ford Motor Company stock, you should consider the following:
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Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Ford is a Great Dividend Stock was originally published by The Motley Fool
