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President Donald Trump said that tariffs on Canada and Mexico, which were put on hold for a month until March 4, will be “going forward on time, on schedule.”
Several industries are worried about the impact of Trump’s tariffs given their global supply chains. This especially holds true for the North American automotive industry, which is integrated across the U.S., Canada, and Mexico. Unsurprisingly, both Ford (F) and General Motors (GM) sounded an alarm over the tariffs during their respective fourth-quarter earnings call. While the tariffs could have an impact on their price action, Ford’s fat dividend could also be at risk.
Ford Has a Generous Dividend Policy
While Ford has lost around half its market cap over the last three years, dividends have been a saving grace. It currently pays a quarterly dividend of 15 cents, which gives it a dividend yield of 6.4%, putting the Detroit auto giant among the top dividend stocks of the S&P 500 Index ($SPX).
The cherries on top are the special dividends that Ford has been paying in addition to the usual dividend. This year, it announced a supplemental dividend of $0.15 that would be paid on March 3 along with the regular cash dividend. This will be Ford’s third consecutive special dividend, after paying $0.18 last year. The company paid a special dividend of $0.65 in 2023, which it attributed to the return on its investment in electric vehicle startup Rivian (RIVN).
Ford intends to return between 40%-50% of annual free cash flows to shareholders, and the company has been paying special dividends to help reach its distribution targets. During the Q4 earnings call, Ford pointed out that it has paid $10 billion to its shareholders over three years.
Notably, while Detroit rival General Motors has gone overboard with share repurchases over the last couple of years, Ford has instead been paying generous dividends. Markets seem to like GM’s share repurchases over Ford’s dividend, though — or at least that’s what we can infer from their divergent price actions over the last 18 months.
Ford’s 2025 Dividend Payout Might Be Lower Than 2024
Since Ford’s dividends are a function of its free cash flows, any deterioration in the company’s earnings and cash flows is bound to impact its payouts. For 2025, Ford forecast adjusted free cash flows between $3.5 billion and $4.5 billion, which is significantly below the $6.7 billion it generated last year.
Ford has around 4 billion outstanding shares. Assuming the company reaches the midpoint of its guidance and pays 45% of its free cash flows as dividends, it would distribute $1.8 billion to shareholders which means an annual payout of just about 45 cents per share – lower than the current levels.
While a supplemental dividend next year looks highly unlikely, even the current yield of over 6% looks unsustainable. I won’t be surprised if Ford limits its payouts towards the low end of its guidance considering the current weak macroeconomic environment. Here it is worth noting that while providing its 2025 guidance, Ford did not factor in any impact from the tariffs which would be nothing short of a double whammy for the company.
What Would Trump’s Tariffs Mean for Ford’s Dividends?
During the Q4 earnings call, Ford CFO Sherry House said that “the precise impact of new tariffs would depend on a number of secondary and tertiary effects, such as price elasticities, how our Tier 1 and Tier 2 suppliers react, substitution effects, possible duty drawbacks and so on.”
CEO Jim Farley was more forthcoming and has termed tariffs “devastating.” Notably, the tariffs would lead to higher costs for Ford as imports from Canada and Mexico would become costlier. Moreover, Trump has announced a 25% tariff on U.S. steel (HVJ25) and aluminum (ALJ25) imports which would come into effect from the next month. These tariffs are another headwind for the automotive industry and would mean that even the cars produced in the country would now become expensive. Trump imposed a 25% tariff on steel and a 10% tariff on aluminum imports during his first term, which Ford estimated would cost it $1 billion in profits between 2018 and 2019.
The tariffs could also dampen auto sales as cars would become expensive. Fewer car sales would also mean lower cash flows for the U.S. automotive industry. In a nutshell, tariffs would negatively impact Ford's top line as well as its bottom line.
Most recently, Trump confirmed that reciprocal tariffs on countries that tax U.S. imports will go into effect on April 2 and that he intends to levy a 25% charge on European counries. He said he also plans to double the 10% tariff levied on Chinese goods.
It would therefore be fair to say that the tariffs will dent Ford’s free cash flows and by extension, the company’s dividends. While it won’t be possible to quantify the impact, in all likelihood, Ford investors will get a lower payout from the company this year compared to what they received last year.
