Investors of a certain age might remember Ford Motor Company (NYSE: F) as a rock-solid dividend stock. The Blue Oval paid shareholders a dividend every year from its IPO in 1956 until 2006, when then-CEO Alan Mulally cut spending as far as he dared in a last-ditch effort to save the deeply troubled automaker.
That effort was a great success, of course. Ford is once again paying a strong dividend to its shareholders. In fact, as I write this, Ford's dividend yield is hovering at a very attractive 4.8%.
But will Ford's dividend be at risk during the next recession?
A couple of notes in looking at that chart: First, 2010 and 2011 were rough years. U.S. auto sales were down sharply from the past decade's highs, and Ford was emerging from the economic crisis swamped in debt. It didn't resume paying a dividend until the first quarter of 2012 .
Second, note that 2016 included a one-time supplemental dividend of $1 billion , or $0.25 per share, after reporting a record operating profit for 2015. Its base dividend payment was still $0.15 per quarter. (It declared another supplemental dividend of about $200 million, or $0.05 per share, last month.)
Why didn't Ford raise its regular dividend in 2016?
Why did Ford pay a supplemental dividend instead of raising its regular quarterly dividend in 2016 and 2017? Ford wants to ensure that its dividend payments are sustainable , even through a recession.
Here's how Ford CFO Bob Shanks put it in a presentation to investors last fall (emphasis added):
Our capital allocation continues to be disciplined and to deliver strong returns, and we are fully prepared for a downturn. As a result, we plan to offer a secure regular dividend through the business cycle with an option for upside on investments to keep our core business strong and to win in emerging opportunities.
Ford has a cash reserve and lines of credit intended to ensure that it can continue to fund new-product development even if its quarterly profits swing to losses during a protracted recession. Shanks explained that Ford's plan is to continue paying its dividend as long as it still has a cash reserve (in other words, until it has to tap its lines of credit).
Ford's capital investments totaled $6.9 billion in 2016, and it expects to spend about $7 billion in 2017. It has the cash to sustain that spending for a while: As of December 31, 2016, Ford's automotive cash reserve totaled $27.5 billion .
Is Ford Motor Company's dividend safe?
Is Ford's dividend safe? It's about as safe as you can expect from an industrial company in a cyclical business. Ford's debt load is modest and well-structured, its credit rating is investment-grade, and its management team is made up of battle-tested veterans who helped lead Ford's epic turnaround.
Long story short: No company's dividend is ever 100% completely safe. But Ford shareholders need not lie awake at night worrying about theirs, even if the U.S. economy slips.
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