Automakers are known for being cyclical companies with a lot of capital expenditures. This capital intensive industry brings big profits when the economy is on the rise, but profits can crater in a downturn.
Alas, the industry is changing. Ford Motor Company (NYSE:F) is taking its losses in Europe, cutting back production in order to maintain minimum production and return to profitability. General Motors Company (NYSE:GM) is doing the same, sacrificing some to save the whole. This is very different from the way automakers acted in years prior, where they would endlessly and relentlessly compete with more cars to steal market share and erode profits for everyone.
A new dividend king
Ford Motor Company (NYSE:F) recently became a leader in shareholder-friendly moves by announcing that it would increase its dividend to $.10 per share up from $.05 per share. This gives shareholders an immediate 3.3% yield vs. no dividend at General Motors and a mostly irrelevant 1.76% dividend from Toyota Motor Corporation (ADR) (NYSE:TM).
But the dividends won’t stop there. I’m a believer that Ford Motor Company (NYSE:F) will continue to increase its dividends faster than all other automakers, and certainly faster than most big industrial companies.
Here’s why: The Ford family calls the shots.
The Fords might as well be Detroit’s royal family. At Ford, the long line from the founder controls virtually all of the decisions at the company due to their 70 million shares of class B stock enabling them to control 40% of the Ford Motor Company (NYSE:F) board.
The Ford family never sells its stock holdings as selling would mean the family gives up control over the company. That simply won’t happen.
If the Ford family sells class B shares outside the family, they are converted permanently to common stock. If family holds fewer than 60 million shares, the family loses more than a quarter of its voting power to control only 30% of the board forever.
In short, the family cannot and will not sell shares to raise cash, shares which makes up the overwhelming majority of its net worth, wealth, and income.