Ford Motor Has Resumed Paying Its Dividend - Expect Another One in January

Mark Hake

Ford Will Have Enough Free Cash Flow to Cover Its Dividend and This Could Push F Stock Higher

Ford Motor Company (F) has resumed paying its quarterly dividend with the latest payment made on Dec. It made the quarterly dividend announcement on Oct. 27 for shareholders of record as of Nov. 19. So investors in F stock can expect to get another dividend announcement in late January 2022.

This has, and will continue to, significantly help shareholders who have been very patient with the company. They realize that Ford is making a transition to all-electric vehicles, as many other original equipment makers of cars and trucks are doing. So their resumption of a dividend shows management’s commitment to its shareholders.

Granted, the quarterly dividend was set at just 10 cents per share. This is one-third below its previous 15 cents quarterly dividend that was discontinued in the first quarter of 2020. But that is looking at the glass from a half-empty standpoint.

Ford Can Afford Its Dividend

For example, now the company says that it can afford its dividend payment going forward. Here is the exact statement the company made in their third-quarter earnings report:

Expects cash flow over current planning period to be more than sufficient to fund growth priorities; announces resumption of regular stock dividend in fourth quarter.

In addition, Ford said that it expects its full-year 2021 free cash flow (FCF) will be between $4.0 billion to $5.0 billion for the full year.

Now, since Ford has 4.036 billion diluted shares outstanding, its quarterly dividend will cost $403.6 million (i.e., $0.10 x 4.036b). That works out to $1.614 billion on annual basis.

So you can see that even if FCF stayed flat next year, which is not likely, the dividend is clearly affordable. The $1.6 billion annual cost of the dividend payments take up just a little over one-third (35.9%) of the forecast FCF at the midpoint, or $4.5 billion.

In fact, the shareholder letter went into further depth on the company’s spending plans. Ford’s chief financial officer, John Lawler, said that the company plans on spending $40 to $45 billion in strategic capital expenditures (CapEx).

This includes the period between 2020 and 2025. Since the company held off on significant spending during 2020 and 2021 this, so far, only includes $4.2 billion in CapEx spending.

As a result, most of that spending will occur from 2023 to 2025. So, even despite this, the board of directors felt it could begin regular dividend payments. This must mean it feels its cash flow will be significantly stronger next year.

Where This Leaves F Stock

The company’s resumption of a dividend was a very smart move by management. The move has had a very healthy effect on the F stock price.

For example, on Oct. 27, when the company made the dividend announcement, F stock was at $15.51 per share. That kicked off a major move higher for Ford stock. It peaked out at $21.45 on Dec. 10, a 38% increase in the stock price. Even at today’s price of $20.35, on Thursday, Dec. 16, F stock is up 31.2%.

The bottom line is that the dividend payment resumption made the stock price go up. So how high can it go?

Let’s assume that Ford is willing to raise the dividend 15% higher. That puts it at 46 cents annually. Assuming the stock has a 2.0% dividend yield at $23.00 per share, or 13% higher than today’s price of $20.35 per share.

And, of course, if Ford decides to raise the dividend higher than 15% next year, the stock will likely climb higher than $23 as well.

In any case, this puts Ford stock on a glide path to move higher as shareholders can expect a good return for their investment. Expect to see it rise anywhere from 13% to 20% higher over the next year as a result.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, security, or crypto, as I am not undertaking to induce you to buy or sell securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

This represents my analysis of Ford Motor stock (F) and it is not meant to provide you with specific advice in your own situation. I do not own Ford Motor stock or related securities or options but I may buy them in the near future. Your own situation could be different and this is not a recommendation to purchase the stock.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ

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