Ford Motor: Fear Not – Seeking Alpha

Posted: Wednesday, April 26, 2017

Ford Motor‘s (NYSE:F) shares look like a good deal for income investors, but only if they stick to it for the long term. Trading in and out of Ford Motor, or trying to anticipate the time when auto sales will pick up again are fruitful exercises in my opinion. Shareholders of Ford Motor may want to collect their quarterly dividend paychecks, reinvest the money, and build wealth long term.

U.S. auto sales growth is slowing. Ford Motor’s February and March sales were down by sizable figures, but that doesn’t mean investors should turn their backs on the auto company. In fact, my argument is that income investors may want to buy into Ford Motor for the long term value of its dividend flow, which, frankly, is the best thing investors can do today.

In my opinion, too much attention is placed on Ford Motor’s potential to grow U.S. auto sales. Ford Motor has a stellar product – the F-150 truck – which has been flying off the lots, and it has been responsible for a good chunk of the company’s sales growth.

Unfortunately, having a best-selling product in your portfolio tends to inflate investor expectations as they relate to free cash flow and earnings growth…And that rarely goes down well.

Eventually, high market expectations with respect to Ford Motor’s earnings trajectory met with the reality of slowing sales growth in Ford’s most important target market, the United States, and it went exactly the way one would expect: Investors ditched the auto company in favor of other investments with potentially better return profiles.

That said, though, Ford Motor’s reward-to-risk ratio is compelling. If you are an income investor that values a steady flow of dividends more than the potential for share prices, Ford Motor is certainly an investment to keep an eye on.

Way too many investors see Ford Motor as a play on capital growth these days, even though it really should be viewed as an income vehicle with a highly competitive yield. An investment in Ford Motor, based on yesterday’s closing price of Ford Motor’s shares, throws off a dividend of 5.25 percent, paid on a quarterly basis. That’s a really solid yield, and one that compares favorably to other yield investments, for instance in the REIT market. Not too many S&P 500 companies pay shareholders a dividend in excess of 5 percent, and the dividend looks sustainable, too.

Ford Motor has said that it expects its profits to rebound in 2018, which potentially opens the door for yet another special dividend. In 2016 and 2017 Ford Motor paid shareholders a special dividend in the 1st quarter of each year, sharing its good fortune with shareholders as sales picked up/remained strong. That said, even without a special dividend, Ford Motor is worth buying for the steady flow of income the investment will deliver over time. An investment in Ford Motor yields 5.25 percent.

Your Takeaway

There is nothing wrong with an investment that is as “boring” as Ford Motor, or that lacks the excitement of other stocks because of its muted sales and earnings outlook. If an investment is boring, yet pays investors a growing dividend over time, and convinces with a compelling starter yield of more than 5 percent, let it be boring. Ford Motor is first and foremost an income vehicle that is poised to deliver significant dividend income over time. Buy for income generation only.

If you like to read more of my articles, and like to be kept up to date with the companies I cover, I kindly ask you that you scroll to the top of this page and click ‘follow‘. I am largely investing in dividend paying stocks, but also venture out occasionally and cover special situations that offer appealing reward-to-risk ratios and have potential for significant capital appreciation. Above all, my immediate investment goal is to achieve financial independence.

Disclosure: I am/we are long F.

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.

Comments

Write a Reply or Comment:

Your email address will not be published.*