Ever wonder what type of dividend players there are in the automotive field? What about a company that is based in your backyard, right in the wonderful automotive state we call Michigan. During the financial crisis, auto makers based in the US were a taboo, asking for bailouts, struggling mightily with lopsided balance sheets, thinking everything was always going to keep going in the right direction. In the last 5+ years, auto makers have been making a ROARING come back, and one of those makers is the legacy company started by good old Henry. That company is Ford (NYSE:F). How did Ford do in 2017, and what does it have on the horizon, now that 2018 has started?
Ford reported earnings earlier last week and guess what? The company reported some of the best earnings it has ever reported. Top line revenue at $156B was over 3% better than 2016, with revenue increasing in both major categories – automotive and financial services. Net income, with the help of the Tax Act, was $7.6B, or 65% better than prior year. The CFO, in the same linked article above, reported over $3B to be distributed to shareholders this year. From the cash flow statement, the company sent dividends out at $2.5B and purchased back stock to the tune of $131M, therefore, one shareholder could only expect more in both categories in 2018!
How about the balance sheet at year end? The current ratio (current assets over current liabilities) calculated to be 1.23 (better than 2016’s 1.20), which I like, as 1 is usually a baseline for me. The quick ratio (current assets less inventory over current liabilities) is 1.12 (better than 2016’s 1.10), even better for me, and above the 1.0 safety zone here. In conclusion, the balance sheet has gotten better since last year from this brief review, with more cash and less long-term liabilities. Further, what could improve the income statement and balance is its new development and forward outlook on mobile technology and adding that as a primary service for customers and to create their own “eco” system. In order to accomplish this, the company acquired a start-up technology company – Autonomic – which specializes in architecture and leverage for the automotive industry. The primary focus will be to support its mobility cloud platform, Chariot (Ride-based program), and a medical/non-emergency platform. It didn’t stop there, either, as Ford also announced the acquisition of TransLoc, allowing it to leverage its operational expertise and network of city relationships.
Now, being the Dividend Diplomats, we must run it through our Dividend Diplomat Stock Screener! Here, I’ll break down its price to earnings (P/E) ratio, dividend yield, dividend growth rate, and payout ratio. These metrics when combined together – along with the assessment of the additional investments it’s made and its financial performance – help form a conclusion on whether or not to invest in this company in conjunction. Let’s go through each factor below.
1) Dividend Yield: The current dividend at $0.15 per quarter or $0.60 per share equates to a 5.15% incredible dividend yield and well over the S&P 500 on average. However, if you add the (typically) special dividend during the year, the yield gets better. This year the company announced an extra $0.13 per share on top of the $0.60. Therefore, at $0.73 for the year, this equates to 6.27% yield! Staggering. This is all based on the recent price of $11.65. I love what I’m seeing, so far, from Ford.
2) Payout Ratio: Typically, we use a 60% payout ratio threshold for stocks to pass our screener. At $1.91 reported earnings per share, the $0.60 dividend being paid, the payout ratio equals 31%. Now, if we take in the special dividend into consideration, this equates to 38%. Still extremely low and is very intriguing. Why is this important? The chance of cut is not likely, and the chance of future dividend growth is more than likely. Fitting, as that’s the next point to look at.
3) Dividend Growth Rate & History: This is where it gets tough. Ford has not increased its baseline quarterly dividend since January of 2015, when it went to 10 cents to 15 cents per share per quarter. 2016 is the year the company introduced the special dividend once per year, so 2018 makes the third year in a row for that. As a dividend growth investor, this is a downside, and I can see the company trying to manage the capital better and then having the option in the form of a special dividend to give more back. This is interesting and something I need to keep in mind.
4) Price to earnings (P/E) ratio: For this metric, we look for the company’s P/E ratio to be lower than the broader market’s ratio to assess the current valuation of the company. Currently, the S&P 500’s P/E ratio is in the mid-20s area. At the price of $11.65, the price to earnings ratio is 6.10 when using $1.91 earnings per share. Per analysts’ expectations, though, for 2018, they are expecting only $1.61. Therefore, this is 7.23, which is still insanely low… hmm… what am I missing here? I like what I’m seeing.
Ford Dividend Stock Analysis Conclusion
Ah, Ford! I love that this is the first deep automaker dividend stock analysis in what feels like a long time. At well over $150B in annual revenue, it is definitely the massive player here in the States. The balance sheet is strong, it is solvent and liquid, with an improvement in balance sheet to boot. Earnings were strong on all fronts, with top line revenue increasing on a go-forward basis over the last few years. Additionally, I like what the company is doing from a technology and mobility aspect, and thinking ahead. I assume it is competing intensely with the other automakers and the game-changer Tesla (NASDAQ:TSLA).
Now, being a dividend growth investor, there are many things I like, and many things I don’t like. I love the dividend yield, the gifts of special dividends each year, the payout ratio and the price to earnings ratio. It’s hard being a dividend growth investor without that second key word – growth. Without increasing the dividend in the last two full years (2016, 2017), that’s a hard pill to swallow. I understand Ford pays the special dividends, but you want to see a consistent track record in increasing the standard dividend. However, I will say that I expect it to increase that dividend this year, even if it is $0.02 per share to $0.17 per share. This would, with the special dividend of $0.13, be 50% based on the forward EPS projections of $1.61. This still is a safe zone and is smack dead in the middle of 0-100% on the payout ratio standpoint.
What do you think? What are your thoughts on the analysis above and the automaker arena currently? Anything I am missing or not seeing from the financial statements? Currently, I am on hold and will monitor prices at this time. Thank you for stopping by. Good luck and happy investing!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.