The Ford dividend is a maybe component of why investors and shareholders buy and hold Ford (F) stock. In this article, we’ll look at every aspect of the Ford dividend including its sustainability, how often it’s paid, how much is paid out on a regular basis and more. We’ll also take a look at dividend investing in general and how the Ford dividend might play a part in an overall investment strategy.
The Ford Motor Company is perhaps one of the most well-known companies in the world. Founded in 1903, it was the pioneer of the modern assembly line and became famous for its ‘$5 workday’3. It was one of the ‘Big Three’ car companies that drove the American car industry during most of the 20th century. However, the company has fallen on tough times lately, and especially after the 2008 Financial Crisis. Although Ford never declared bankruptcy like some of its competitors, it still lost over $30 billion from 2006 – 20084. However, even before the Financial Crisis Ford’s stock was under-performing the general market. In fact, from January 1st, 2000 Ford’s stock has lost 70% of its value. Over the last 10 years, it has lost about 8% of its value5 (though we should note that the return only became negative since July 2018 when the company missed earnings expectations and lowered its 2018 forecasts6).
Despite its lackluster stock performance, some investors still see it as an attractive investment because it pays a quarterly dividend. Given that its dividend is a major reason for investors buying Ford stock, it is important to review the history of this stock and its dividend.
Ford Dividend Quick Facts
Previous Ford dividend payout:
- Last dividend payout per share: $.15
- Last dividend payment date: December 1, 2019
- Last ex-dividend date: October 20, 2019
- Trailing Dividend Yield: 6.49%
Next Ford dividend payout:
- Next dividend payout per share: $.15
- Next dividend payment date: March 2, 2020
- Next ex-dividend date: January 29, 2020
Last Ford dividend increase: $.025 increase in January 2015.
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Ford Dividend History
As might be expected, Ford faced major financial challenges during the Financial Crisis of 2008. As a result, the company suspended its dividends from 2007 – 2011. But since Q1 2012 Ford has paid a dividend every quarter4. When the company announced it was re-instating the dividend it said this was an “…important sign of our progress and confidence in the future7.” This perhaps was not an over-statement, as at the time Ford was the only of the ‘Big Three’ automakers paying a dividend8.
From 2012 – 2016 Ford’s annual dividend increased over 4x from just $0.20 per share to $0.85 per share. However, since 2016 the dividend has fallen to $0.60 per share4.
Ford paid a special dividend in 2016, 2017, and 2018. While there may have been several reasons for this, the most likely appears to be that the company missed analysts’ expectations during all three of these years9,10,11. Thus, it seems Ford has been using a special dividend to compensate for their misses and to keep shareholders happy. The reason for using a special dividend rather than a regular dividend to increase shareholders’ returns seems to be so that the company can claim a consistent regular dividend over time and does not have to risk eventually having to lower its regular dividends. Evidence of this theory can be seen in the company dividend announcements, which for several quarters have read: “The [number] quarter dividend is the same amount of regular dividend that has been paid by the company each quarter since 201612.” So, the company is emphasizing to its investors that they have had a consistent dividend each quarter and increasing the regular dividend might put this message at risk in the future. While this approach may have made sense for a while, it has also led to a highly inconsistent dividend policy – which we will discuss in the ‘Analysis’ section of this article. In 2019, Ford did not pay a special dividend, which is almost certainly due to an $11 billion restructuring plan being implemented to improve the company’s future business. The restructuring plan involves cutting thousands of jobs and investing heavily in electric vehicles as part of a partnership with Volkswagen13. While the costs of restructuring are undoubtedly painful for shareholders in the short term, it is a good sign that Ford is finally acting on the changing needs of the global automotive industry.
Ford Dividend Analysis
Beyond the absolute dollar amount of the Ford dividend, investors should analyze the return this dividend is providing to shareholders and how sustainable the current dividend level is for the company.
We have already seen that Ford’s stock price has severely under-performed the broader stock market5. However, Ford’s dividend yield is another story: it has been increasing almost every year since the company re-instated its dividend in 2012. Overall, the dividend yield has increased over 2.5x from 2.6% in 2012 to 6.7% in 2019, and this is even not taking into account the recent series of special dividends4. For income focused investors this is quite an attractive return, especially given that the average dividend yield of the S&P 500 is only around 3% – 5%16.
While this sounds like a wonderfully simple story, there is a fundamental question still to be answered: is this dividend sustainable? Two key ratios to help answer this are the dividend payout ratio and the dividend coverage ratio. Unfortunately, both of these ratios for Ford have been too volatile to give a firm answer on if the dividend is sustainable for the company. Since 2012, the dividend payout ratio has ranged from a high of over 150% (due to a financial restatement in 2014 from $0.81 EPS to $0.32 EPS) to a low of under 15%. Similarly, the dividend coverage ratio has ranged from over 7 to under 14,14,15. Given these wide fluctuations, we can only make general assessments of the dividend’s sustainability.
On average, the Ford’s payout ratio is about 60% and its dividend coverage ratio is about 2.7. Even without the special dividends of 2016 – 2018, these ratios would be 55% and 2.8, respectively4,14,15. Either way, these ratios generally indicate that Ford’s dividend is probably too high to last long term, but not necessarily unsustainable in the short to medium term. Ironically, it is likely because the company is facing so many challenges that it pays a slightly aggressive dividend to keep its shareholders happy and its stock price high (though this effort has not worked well in recent years)5.
A final area which should be analyzed regarding Ford’s dividend is how well the company’s profits are covering the dividends it pays. An analysis of cash flows from operations vs dividends paid shows that Ford does not pay out an unreasonable amount of its operating cash flows in the form of dividends. On average since re-instating its dividend in 2012, Ford has paid out about 15% of its operating cash flows as dividends. This is not an unreasonably high number, though investors should keep an eye on the fact that Ford has increased this rate from 8% in 2012 to 19% in 20184,14,15. Given Ford’s apparent history of using a divided to bolster its stock, there is a risk that the company will refuse to lower the dividend even if it starts paying out too much of its profit to dividends.
Over the next few years it is unlikely that Ford will increase its dividend as the company goes through its $11 billion restructuring13. However, given the strong interest the company has shown in keeping shareholders happy in the past, it is also unlikely that they will decrease the regular dividend either. So, investors can probably expect the current ~7% dividend yield to remain fairly steady in the short term.
Finally, let’s take a look at some of the risks for investors looking to buy Ford stock. The main risk, which we have already reviewed, is that Ford has lost value over the last several years as the company repeatedly missed analyst expectations5. Even with a strong dividend yield, investors should be focused on a stock’s overall return, and so should be wary of a stock that has under-performed to this extent.
Another key risk is the $11 billion restructuring the company is currently undergoing13. While it is a good sign that the company is taking a pro-active approach to its future, there is no certainty that its plan will work. It could end up being an expensive exercise in futility, and investors won’t know if this is the case for a few more years. If the restructuring fails or is more expensive than expected, it could even threaten the dividend that has bolstered Ford’s stock price for several years.
A third risk to Ford is the major changes and strong competition in the global automobile market. Ford has had significant challenges in its international divisions. In China especially – the world’s largest automotive market – Ford has lost out to the many Chinese competitors that offer wider variety and lower prices17. In 2018, Ford had only 2.9% of the Chinese market, compared to 14% of the American market4. The company is planning to improve its international operations by focusing on products which appeal to each market, building vehicles within local markets to avoid tariffs (tariffs alone cost Ford $750 million in 2018), and working to make overseas dealerships more profitable17. As with the wider restructuring plans underway by Ford, investors must accept the risk of these initiatives failing as they consider whether or not to buy Ford stock. However, it should be noted that the U.S market makes up the vast majority of Ford’s profit, so challenges in international markets are less likely to put the stock’s dividend at risk4.
Another risk to examine is Ford’s overall debt. Specifically, some investors have expressed concern over the sustainability of Ford’s dividend due to the increasing debt held by the company. While it is true that Ford’s total debt has increase about 50% from $105 billion in 2012 (when Ford re-instated its dividend) to $154 billion in 2019, the debt-to-total assets ratio has actually remained fairly consistent at just under 60%4. As such, the increasing debt does not pose an increasing threat to the stock’s dividend because the new debt is also covered by new assets. It should also be noted that during this time Ford’s credit rating has been upgraded multiple times by the rating agencies, so this new debt is higher quality/lower risk4.
Finally, there is a risk unique to Ford that must be discussed: the Ford family. The Ford family still controls 40% of the voting power of Ford Motor Company, giving them an outsized ability to influence the future of the company18. The family has also shown itself more than willing to use this power for their personal advantage. In 2000 the family used its voting power to pay a $10 billion special dividend – the largest ever by any American company at the time – in part to let the family cash in on a $24 billion cash stockpile the company had been saving while maintaining their voting power18. This clearly shows how the interests of one family can completely change the direction of the company. After all, one can only wonder how different Ford would be today if it had kept that $24 billion in cash into the 2008 Financial Crisis. This story becomes even more concerning when you remember that in 2006 – just 6 years after halving its cash reserve – Ford had to ask for $24 billion in loans to save the company from possible bankruptcy19. As long as one family has such an outsized amount of control, Ford’s stock and dividend will always be somewhat a risk for investors.
Dividend investing is a popular style of investing, and it’s fairly easy to see why: while most stock returns are only realized after you sell the stock, dividends give you a regular steam of value while you still own the stock. For this reason, dividend-bearing stocks have a higher yield than they otherwise would and are more valued by investors. Dividends are mostly paid as cash but can also be paid with additional shares of stock or even with property (though this isn’t very common).
There are a few different approaches to dividend investing. In general, investing in dividend stocks is considered a type of ‘income investing’ because the dividends can be seen as income for the stock owner. So, the simplest approach to dividend investing is to just buy high-dividend stocks and live off the dividend ‘income’. Another approach is when investors looking to grow their investment portfolio re-invest their dividend income by buying more of the same stock that gave them the dividend. This is known as ‘dividend re-investing’. Finally, some investors follow a ‘growth dividend’ approach in which they buy stocks of companies that are likely to increase their dividend over time, thus increasing the value of their investment as well as the dividend cash flows they receive while holding the stocks.
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However, as with all forms of investing, dividend investing is not risk-free. The first is that buying stocks only because they provide a dividend could mean that investors may fail to thoroughly research the company itself and so invest in low quality companies. This is especially a risk with dividend investing because some companies use dividends to compensate for an under-performing stock price. For example, General Electric can proudly say it has paid a dividend every year since 1941! But it’s current dividend? A penny – one single cent1. Not exactly the dream stock for dividend investors. Another risk is that investors will become so focused on dividend-bearing stocks that their portfolio will not be well diversified, and diversification is one of the fundamental pillars of investing. Finally, focusing too much on dividends may have investors missing out on investment opportunities. This is because dividends are paid out of company profits, so companies whose industry is at a cyclical low point or who are heavily investing in future opportunities may not pay a dividend even though they are well positioned for future growth and profitability.
So, how can you analyze a dividend investment to make sure you are both avoiding these risks and buying the best investment? There are several key financial measures to examine. One of the most important ratios is the Dividend Yield, which is the annual dividend per share divided by the price per share. This yield measures the annual rate of return that just the dividend (not stock price increases) provides to investors. So, investors looking for the best return would naturally favor high dividend yield stocks. Another important measure is the Dividend Payout Ratio, which is the dividends per share divided by earnings per share. This ratio measures what percentage of a company’s profits are being paid out as dividends. If this ratio is too high, it could indicate the current level of dividends is unsustainable over the long term or that the company is failing to invest enough of its profits in growth opportunities. Generally, a Dividend Payout Ratio below 50% is seen as sustainable and leaving some room for future dividend growth, and a ratio above 50% is seen as unsustainable in the long term because the company is paying over half of its profits out as dividends. A closely related ratio is the inverse of the Dividend Payout Ratio: the Dividend Coverage Ratio. This indicates how many times the company could pay out its dividends from its profits, and generally a higher number is preferred. These measures help investors ensure they are examining the overall risk-return profile of a stock, and not just the potential returns from its dividend.
Finally, before starting dividend investing it is important to understand how dividends are paid as a purely tactical process. There are four important dates to know. First is the Declaration Date, which is when a company publicly announces it will pay a dividend. The next important date is the Ex-Dividend Date. If an investor purchases the stock before the ex-dividend date, they are entitled to receive the dividend. The Ex-Dividend Date is set by stock exchange rules and is usually one business day before the Record Date, which is the date that you must be on the company’s books as a shareholder to receive the dividend. However this can be slightly confusing as the shareholders of record on the actual record date might be the shareholders from one or multiple business days prior (hence the relevance of the ex-dividend date). To ensure you will collect the dividend, just make sure you own the stock on the day before the ex-dividend date.
Finally, the Payable Date is the date on which the dividend is actually paid to investors2.
So, to summarize:
Declaration Date -> Ex-Dividend Date -> Record Date -> Payable Date
Frequently Asked Questions
How much is Ford’s dividend?
Ford is currently paying $.15 per share per quarter for a $.60 per share annual dividend. In year’s past, Ford has supplemented this payout with a special dividend which increases the total annual dividend, but future special dividends and regular dividend increases are not yet clear.
How often are dividends paid?
Dividends are typically paid quarterly. Ford pays a regular quarterly dividend. In some years, they also pay a special dividend that is in addition to the regular quarterly dividend payment.
What is the ex-dividend date for Ford?
To capture the dividend payout, an investor must own the stock prior to the ex-dividend date. Ford’s last ex-dividend date was October 20, 2019 for the December 1, 2019 dividend payment. As such we can anticipate the next ex-dividend date will be roughly January 20, 2020 for the March 1, 2020 dividend payment. When Ford declares the next dividend, these dates will become official.
- “Individual Investors.” GE.com, General Electric, 2019, https://www.ge.com/investor-relations/individual-investors.
- “Ex-Dividend Dates: When Are You Entitled to Stock And Cash Dividends.” Investor.gov, Securities and Exchange Commission, https://www.investor.gov/additional-resources/general-resources/glossary/ex-dividend-dates-when-are-you-entitled-stock-cash.
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- “SEC Filings.” Shareholder.ford.com, Ford Motor Company, 18 Dec. 2019, https://shareholder.ford.com/investors/financials/sec-filings/default.aspx.
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- “2011 Annual Report.” Shareholder.ford.com, Ford Motor Company, 21 February 2012, https://s22.q4cdn.com/857684434/files/doc_financials/2011/annual/2011-annual-report.pdf.
- Isidore, Chris. “Ford Reinstates Dividend after 5-Year Hiatus.” Money.cnn.com, Cable News Network, 8 Dec. 2011, https://money.cnn.com/2011/12/08/news/companies/ford_dividend/index.htm.
- Shepardson, David. “Ford Sets a Special $1 Billion Dividend, but Profit Outlook Disappoints.” Reuters.com, Thomson Reuters, 12 Jan. 2016, https://www.reuters.com/article/us-ford-motor-dividends-idUSKCN0UQ2MF20160113.
- “Ford’s 2017 Profit Misses Wall Street Estimates.” Reuters.com, Thomson Reuters, 16 Jan. 2018, https://www.reuters.com/article/ford-outlook/fords-2017-profit-misses-wall-street-estimates-idUSL3N1PB5K7.
- Naughton, Keith. “Ford CEO’s Call for Patience Spurned as Shares Fall Most in Year.” Bloomberg.com, Bloomberg, 16 Jan. 2019, https://www.bloomberg.com/news/articles/2019-01-16/ford-sees-potential-gains-after-2018-profit-misses-estimates.
- “Ford Motor Company Declares Dividend for Fourth Quarter 2019.” Shareholder.ford.com, Ford Motor Company, 10 Oct. 2019, https://s22.q4cdn.com/857684434/files/doc_news/2019/10/Ford-Q3-2019-Dividends-Advisory.pdf.
- Wayland, Michael. “Ford Shares Tumble Nearly 7% as $11 Billion Restructuring Hits Bumps.” CNBC, CNBC, 24 Oct. 2019, https://www.cnbc.com/2019/10/24/ford-shares-tumble-7percent-as-11-billion-restructuring-hits-speed-bumps.html.
- “Ford Motor Company (F).” Finance.yahoo.com, Yahoo Finance, 2019, https://finance.yahoo.com/quote/F/history?period1=1230786000&period2=1577509200&interval=1d&filter=history&frequency=1d.
- “Ford Motor Company Common Stock (F) Earnings Report Date.” Nasdaq.com, Nasdaq, 2019, https://www.nasdaq.com/market-activity/stocks/f/earnings.
- Ross, Sean. “A History of the S&P 500 Dividend Yield.” Investopedia.com, Investopedia, 4 Dec. 2019, https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp.
- Ferris, Roberto. “Ford’s 5 Big Fixes for Its Troubled International Business.” CNBC.com, CNBC, 24 Jan. 2019, https://www.cnbc.com/2019/01/24/fords-5-big-fixes-for-its-troubled-international-business.html.
- Bradsher, Keith. “Ford Motor to Pay $10 Billion Dividend and Ensure Family Control.” Nytimes.com, The New York Times, 15 Apr. 2000, https://www.nytimes.com/2000/04/15/business/ford-motor-to-pay-10-billion-dividend-and-ensure-family-control.html.
- Vlasic, Bill. “Choosing Its Own Path, Ford Stayed Independent.” Nytimes.com, The New York Times, 8 Apr. 2009, https://www.nytimes.com/2009/04/09/business/09ford.html.