Why Ford is a dividend giant

There are only a handful of flagship automakers and Ford Motor Company (F 2.02%) it is certainly on the short list with its well-known Blue Oval brand. For dividend investors, the Detroit automaker offers a compelling stock, with the stock down 12% over the past year, trading at a price-to-earnings ratio of 11. It has some solvable problems, plenty of cash and a policy of dividends. which often includes special dividends.

Here are some other reasons why Ford is a great dividend stock.

Lockable headwinds

One of the first problems Ford has to solve is China. The automaker has steadily lost sales ground in recent years as it has failed to keep up with the rapid shift to electric vehicles (EVs) — more than half of new car sales in China were electric vehicles in July. In fact, in 2016 Ford sold 1.3 million vehicles in China, and in 2022, they will reach below 500,000.

With unfilled production capacity, declining sales, and no way to turn the country into a second pillar of profits as once anticipated, Ford has a problem to solve. The company is thinking a little outside the box, but the strategy to export vehicles from China is intensifying. Last year, Ford shipped more than 100,000 vehicles from China, which was a record. In the first half of 2024, Ford’s exports from China have increased by 45% compared to the previous year, already reaching 75,000.

It might be more of a stopgap in China right now, but Ford is moving in the right direction and eventually China won’t be a headwind one way or the other.

Another headwind ahead of Ford will require a little more patience. Its e-model division, which is responsible for electric vehicles, could lose as much as $5.5 billion in 2024 alone. Ford has struggled to refocus its electric vehicle strategy, which includes delaying or canceling investments in electric vehicles by up to $12 billion to try to offset losses and better balance product supply with consumer demand.

It will take time to turn the e into a profitable division, and Ford has a lot of work to do to lower the prices of batteries and other components. Currently, the company has made a big bet on a low-cost platform targeting a $25,000 price tag to appeal to mainstream consumers — but whether it will ever be profitable is a real question.

Lots of cash

These are two main obstacles facing Ford, and the good news is that both are fixable over time and would open up valuable capital that can be spent on dividends. Regardless of accumulated losses in its e-model division and struggles in China, Ford has an excellent balance sheet, plenty 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, while boasting a balance sheet with nearly $27 billion in cash and about $45 billion in cash. A driving force behind these results is Ford’s thriving Ford Pro division, which generated nearly $2.6 billion in earnings before interest and taxes during the second quarter, more than double its traditional Ford Blue business , which generated nearly $1.2 billion — and far better than the model. the loss is 1.1 billion dollars. Better yet, Ford Pro’s EBIT margin was 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, which is well known for loving its dividends. The Ford family owns a separate set of shares that carry special voting and dividend rights, and because of this, the company always focuses on returning value through dividends rather than share buybacks. Ford also isn’t shy about offering additional and special dividends when it has extra cash, as it did when it sold its stake in Rivian and gave investors a juicy special dividend of $0.65 per share.

Ford offers income investors a great opportunity. It’s an iconic brand with cheaply-trading shares, a dividend that’s likely to grow as headwinds, it has a Ford Pro business with a big cash-printing margin and a dividend yield of 5.5%. This is why Ford is a great dividend stock.