- Buy Ford for its 4.14% yield, against a 30-year government bond paying less than 3%.
- Ford can support its dividend with earnings, and that should continue next year.
- Ford will never be a capital gain stock again, but it is a safe investment for a conservative portfolio.
There is only one kind of investor who should be interested in Ford Motor (NYSE:F) common stock, and that is the income investor.
Income investors look to dividends, not capital gains. They not only want the highest possible dividend rate, but they want that dividend to be safe, supported by net income.
That is the case for Ford in a nutshell. The company’s 15 cent/share dividend represents a yield of 4.12%, at its closing Tuesday price of $14.56. Even if the Federal Reserve raises interest rates by .25% later this month, it’s unlikely that 30-year bond rates will rise much beyond their current 2.91%, and if you’re in a 25% tax bracket you’re still ahead of the game with Ford.
Ford is an enormous company, with sales last year of $144 billion, a number it should eclipse easily this year as it had $109 billion in sales for the first three quarters and the U.S. industry is now selling cars and trucks at an 18 million/year rate. Ford only gets a retailer’s return on those sales, bringing just 5% of sales to the bottom line last quarter, but cash flow is strong, and should well exceed $15 billion this year.
Most coverage of Ford focuses on the cheap stock price, and small movements in that price. Ford has been dirt cheap for years, and it is never going to be Toyota Motor Corp (NYSE:TM). But, again, that’s not why you buy the Ford stock. You buy it for the dividend.
Ford is slow, but Ford is steady. It has labor peace, and it has continuity of management .
Most analysts have a hold rating on the stock . That is fair, this is not a stock to trade. In the last five years it has moved in a range of from $10 to $18 per share and it is now squarely in the middle of that range.
There was a belief among some analysts, a few years ago, that Ford should outperform General Motors (NYSE:GM) because it did not take the government’s 2009 bailout, which GM has since retired. GM returned to paying dividends last year, and its yield of 3.97% is nearly equal to that of Ford. But GM shares have increased in value by nearly 8.5% this year, while those of Ford are down 7.5%. You may think this makes GM the play, but remember that when you are buying a dividend stock you are buying for yield, not for capital gains, and Ford retains the better yield.
It is far more likely that Ford stock will rise next year than fall, because low oil prices mean the car market should continue to roar ahead, especially in the light truck arena where Ford shines. But if you’re buying Ford stock, you’re buying it to put it aside and collect income. Do that and you should do well.