Ford’s Debt Payment Means Dividend May Return as Soon as 2012

Ford’s Debt Payment Means Dividend May Return 2012
Ford Motor Co. CEO Alan Mulally speaks to the media following the company's annual shareholders meeting in Wilmington. Photographer: Bradley C. Bower/Bloomberg

Ford Motor Co., which caught up yesterday on preferred stock dividends it missed for 14 months, may resume payouts on the common stock as soon as 2012, according to data compiled by Bloomberg.

The automaker still needs to pay off more of its approximately $27 billion in debt before resuming the dividend, officials and analysts said. Still, quarterly dividends of 5 cents a share could proceed in 2012, a year ahead of earlier projections, according to Bloomberg estimates based on the data.

Ford removed a key legal hurdle to the dividend by paying $255 million in deferred dividends on its Capital Trust II preferred stock, along with a $3.8 billion payment to a trust for union retirees. Now that those dividends are paid in full and restored, Ford is free to reinstate a dividend on its common shares and Class B shares owned by the Ford family. The size of the payments -- made ahead of schedule -- shows the carmaker is confident it can generate cash.

“If you have that kind of cash flow and you’re paying down debt, I could see a dividend maybe a year from now,” Bernie McGinn, president of McGinn Investment Management in Alexandria, Virginia. His firm owns 330,000 Ford common shares.

Ford eliminated its common-stock dividend on Sept. 15, 2006, when it was 5 cents a share. The company made its last payout on the Capital Trust II in January 2009 and missed payments starting in April of that year.

“Our priority is to continue to reduce debt and strengthen our balance sheet, and ultimately restore an investment-grade debt rating,” Mark Truby, a Ford spokesman, said in an e-mail. “As we make progress on these objectives, I’m sure our board will evaluate the stock dividend down the road.”

Ford Debt

Ford borrowed $23 billion in late 2006 after it hired Chief Executive Officer Alan Mulally from Boeing Co. The funds gave the automaker a cash cushion that helped it withstand losses and avoid the bankruptcies that befell General Motors Corp. and Chrysler Group LLC last year.

The preferred stock dividend and union payments reduced Dearborn, Michigan-based Ford’s debt by about $4 billion. Ford common shares rose 20 cents to $10.08, reversing five trading days of declines. Ford generated free cash flow of $4.68 billion in 2009 and $1.02 billion in the first quarter of this year.

The Bloomberg dividend estimates are based on seven criteria, including a company’s guidance, dividend history, regression analysis and put-call parity.

Chief Financial Officer Lewis Booth said in a March interview that the company is unlikely to bring back a common-stock dividend anytime soon.

‘Huge Demands’

“We still have huge demands on our cash,” Booth said at the time. “I wouldn’t want to raise people’s expectations.”

The chances that Ford pays a dividend in the near future could be further diminished by the slower-than-expected recovery in auto sales, said Shelly Lombard, senior high-yield analyst with New York-based Gimme Credit.

“If the recovery stalls, you like a company to have more cash,” Lombard said in an interview. “The industry is still volatile. I don’t think they’re at a point where they should be paying a common-stock dividend.”

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