Ford Motor's (F) formidable reputation in the automobile industry is no secret. Founded in 1903 by industry pioneer Henry Ford, the Dearborn-based company is one of Detroit's “Big Three,” a multinational automaker that designs, manufactures, markets, and services a wide variety of automobiles, commercial vehicles, and automotive parts. Some of their famous brands include Lincoln, Mustang, F-Series trucks, and Explorer SUVs.
Currently commanding a market cap of $49.66 billion, Ford stock is up a little less than 1% on a YTD basis, extending a longer-term trend of lagging the market. The shares are up 5.8% in the last 52 weeks, and 26.6% in the past five years - underperforming the S&P 500 Index ($SPX) over every time frame.
However, as Ford stock finds its footing after a lengthy stretch of underperformance, its dividend yield makes it an attractive choice for investors looking for a regular source of passive income through dividend investing.
The stock currently offers a forward dividend yield of 4.82%, considerably higher than the consumer discretionary sector median around 2%. Ford's dividend yield is also higher than peers like General Motors (GM), at 0.87%, and Honda Motors (HMC), at 2.51%.
Moreover, after accounting for special dividends, the trailing 12-month payout tops 6% for Ford shareholders. With a reasonable payout ratio of 31.75%, the dividend is well-covered by earnings, leaving room for Ford to continue raising its dividend in the future.
Ford Reports Q1 Earnings
Ford's results for the first quarter, reported in late April, were mixed. Revenues for the quarter rose 3.2% to $42.8 billion, up from $41.5 billion in the year-ago period, but just short of analysts' expectations. Its commercial business, Ford Pro, was the primary driver in growth, with revenue rising 36% from the previous year to $18 billion. However, revenue was down 13% in the Ford Blue combustion engine business, while the Model e division continues to lose money.
Overall, first-quarter EPS slipped by 24% yearly to $0.49, on an adjusted basis, topping the consensus estimate of $0.43.
Notably, the company closed the quarter with a cash balance of $34.46 billion, compared to its debt levels of $149.42 billion.
As context, about 86.5% of that debt originates from Ford Credit, the company's financing arm. Ford Credit's primary function is to raise capital through debt issuance, which is then used to finance consumer purchases of Ford vehicles. However, this debt is partially mitigated by the corresponding assets held by Ford Credit. These assets take the form of loans and leases receivable from consumers, essentially offsetting a significant portion of the overall debt liability.
Ford's Diversified Business Model
Taking a closer look at Ford's multiple business lines, its diverse portfolio has helped to offer a buffer against shifting consumer trends.
Ford's business operates through four key segments. Ford Blue tackles the traditional side, handling sales of gasoline and hybrid vehicles along with their parts. In contrast, Ford Model E spearheads the company's electric future, focusing on EVs and their components. Rounding out the vehicle segments, Ford Pro caters specifically to commercial, government, and rental markets.
While Ford Credit might not be the revenue powerhouse, it is the company's financial engine. By providing financing options for car buyers, it plays a critical role in driving sales across all segments. This is particularly important as the overall auto industry hasn't fully recovered to its peak sales figures.
This multi-pronged approach to vehicle production has left the company relatively well-positioned compared to some of its “pure-play” competitors, particularly amid data showing a heightened trend for hybrid electric vehicles.
Is Ford Stock a Good Buy?
Overall, analysts have deemed Ford stock a “Hold,” with a mean target price of $13.96 which indicates an upside potential of about 13.4% from current levels. Out of 18 analysts covering the stock, 6 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 8 have a “Hold” rating, and 3 have a “Strong Sell” rating.
While analysts seem undecided, it's worth pointing out that this high-yield auto giant has rarely been cheaper, allowing dividend investors to maximize their effective yield. At current levels, Ford is priced at 6.24x forward earnings and 0.29x sales, marking a steep discount to its industry peers and its own historical averages.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
