What does a company do when it is trying to make a statement to the world that it believes in itself, it is confident about its prospects, and its plans are going well? The answer is simple – it promises returns! This is exactly what Ford Motor Company (NYSE:F) seems to have done when it announced in January that it would be double its quarterly dividend to $0.10. This was adequately acknowledged by the investor community, leading to a 2.8% rise in the stock. However, since then there has been a twist in the tale. The announcement of Ford’s European losses has resulted in a weakness in the stock price. And this in turn is offering investors a yield well above 3%, making the stock even more attractive.
This is Ford’s highest dividend in the past 7 years. The last time that it had paid a $0.10 dividend was way back in 2006. At that time the company was expecting $17 billion in losses and was soon forced reduce and finally suspend dividends. Everyone was sure that a bankruptcy was imminent. However, there was one gentleman who had very different plans–CEO Alan Mullaly, who took over in 2006, proved to the world that with his business acumen and clever strategizing Ford would survive the recession without a government bailout, unlike rivals General Motors Company (NYSE:GM) and Chrysler! Well all that’s over and done with, and in the current context what is important is that after reinstating a quarterly dividend of $0.05 towards the end of 2011, within a year the company has doubled its payout.
It is certain that Ford will not risk announcing a dividend cut in the foreseeable future after it has toiled for years to boost the confidence of investors. So, it is confident about doing good business and has a solid liquidity position. In the fourth quarter the company made pre-tax profits of $1.7 billion, or $0.31 per share, beating analyst estimates of around $0.26 per share. This was driven by stellar results in the US as the F-series pick-ups continued to make money for the company. This range contributes the lion’s share to Ford’s global profits, and it bodes well that January sales were up 22%.
Ford has predicted that it will be earning more in North America in 2013 and will be increasing market share. It is true that investor enthusiasm was dampened a little when the company said that it expects a 10% margin in North America, lower than the 10.4% it made in 2012. The analysts were expecting something close to the 11% mark, and this spurred debate over whether Ford was deliberately providing a soft guidance with hopes of beating the same. The only fact that emerges from this is that no one doubts Ford’s margins and profit prospects and provides us a good bit of comfort regarding the dividend boost.