Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

After Ford Motor Company (F)’s Big Dividend Increase, Is the Stock a Buy?

Page 1 of 2

In late January, Ford Motor Company (NYSE:F) announced it had doubled its shareholder payout, from a previous nickel per share to its current level of 10 cents a share paid quarterly.  The announcement meant that Ford’s dividend was now at its highest level since before the financial crisis.  Usually, dividend increases are a great way for a company to demonstrate the health of its business.  On the contrary, however, the company’s most recent quarterly results spooked the market, sending its stock down 5%.  Therefore, which signal regarding Ford is the correct one?

Ford Motor Company (NYSE:F)The Automotive Rebound

Ford is the largest publicly traded auto maker in the United States, with a $50 billion market capitalization that is slightly higher than its closest competitor General Motors Company (NYSE:GM).  Investors interested in the automotive industry may prefer GM to Ford on the basis of a few valuation metrics.  GM appears to be slightly cheaper, with a forward price-to-earnings ratio of 7 compared with Ford’s forward P/E of 9.  Furthermore, GM and Ford are trading at price-to-book ratios of 1.5 and 2.8, respectively.  Unfortunately for GM investors, the company suspended its dividend upon its reorganization, and has not resumed dividend payments since its return to trading publicly in 2010.

Japanese auto manufacturer Toyota Motor Corporation (NYSE:TM) has a market value bigger than Ford and GM combined, at roughly $150 billion.  Toyota’s shares navigated the Great Recession and the subsequent recovery better than Ford and GM.  The stock is nearing the levels it was trading at in 2007 and 2008.  In addition, Toyota performed very well over the first six months of 2012.  Net revenues during the period increased 36% versus the prior year.

Ford’s European Problem

There’s no doubt that Ford doubling its dividend payments is a good sign.  At current prices, the stock yields 3%.  However, the market was far less pleased when the company announced its European losses would widen this year.  Previous expectations were for a loss slightly exceeding $1.5 billion, and the company announced those losses would be closer to $2 billion.  Last year’s losses in Ford’s European segment totaled $1.75 billion, so clearly the market was expecting progress, not regress.  As a result, the company’s shares had its worst day in seven months.

Page 1 of 2
Loading Comments...