Ford Doubles Dividend to 10 Cents on Record Margins
Ford Motor Co. (F), the second-largest U.S. automaker, doubled its quarterly dividend to 10 cents a share, a move that will boost the annual payout to the Ford family to more than $28 million.
The first-quarter dividend, which will cost the company about $380 million, will be payable March 1, the Dearborn, Michigan-based automaker said today in a statement. Ford, which resumed paying a dividend last year after a five-year hiatus, cited its strengthening business for increasing the payout.
Ford earned $6.47 billion before taxes in North America in 2012’s first nine months, more than it made in the region for all of 2011. North America had an operating profit margin of 11.2 percent during the period in an industry where a 5 percent margin is respectable, as part of Chief Executive Officer Alan Mulally’s product-development plan known as One Ford.
“Ford put a plan in place to fix the company, they leveraged up and put a mortgage on the place to get it done, and they’ve executed that,” Matthew Stover, a Boston-based analyst with Guggenheim Securities LLC, said by telephone. “Now, they’re returning some capital.”
Ford rose 2.7 percent to $13.83 at the close in New York trading, the highest in 18 months. The shares have gained 6.8 percent this year after rising 20 percent last year.
The Ford family has 40 percent voting power through a special class of stock known as Class B. The increased dividend will pay out $28.3 million annually to the 70.9 million Class B shares outstanding.
“People will argue, particularly given what’s happened recently with tax rates, if this is the smartest decision, but then they’ll also need to remember that there is a very significant family shareholder here that relies on these dividends for income,” said Stover, who has a neutral rating on Ford.
Executive Chairman Bill Ford, 55, great-grandson of founder Henry Ford, holds 14.5 million Ford common shares and 4.23 million Class B shares, according to the company’s 2012 proxy statement. Edsel Ford, 64, also a great-grandson of the founder, holds 3.06 million common shares and 5.24 million Class B shares.
A 10-cent dividend will boost Bill Ford’s annual payout to $7.49 million per year and raise Edsel Ford’s to $3.32 million.
Ford has recorded 14 consecutive quarters of net income as it has boosted margins through its One Ford global product development plan. Mulally, 67, is trying to boost profits by selling the same models globally, rather than different versions for various regions. The strategy aims to leverage Ford’s economies of scale to improve profit margins.
“When I heard the news driving into work this morning, I got excited,” said Gary Bradshaw, fund manager for Dallas-based Hodges Capital Management, who has about 150,000 Ford shares and now is ready to buy more. “As soon as I heard it, I thought, ‘Man, now is the time to buy Ford, the stock is acting great.’”
Bradshaw said he now regrets reducing his Ford holdings last year after the automaker said it would lose $3 billion in Europe in 2012 and 2013. European woes and the sluggish U.S. recovery had weighed on Ford shares for much of last year, Bradshaw said.
The amount and timing of the dividend increase surprised some analysts. It will cost the automaker $1.5 billion annually.
“This announcement is larger than we expected,” Joseph Spak, an analyst for RBC Capital Markets, wrote today in a note to investors. “Today’s announcement shows strong confidence in their outlook, balance sheet and liquidity. We expect Ford to continue to grow the dividend with earnings and liquidity.”
The doubling of Ford’s dividend occurred almost a year earlier than Jefferies Inc. expected, analyst Peter Nesvold wrote today in a research report. The New York-based analyst, who has a buy rating on Ford, increased his price target to $16 from $14. Citigroup Inc. also raised its price target for Ford to $15 from $14.
Ford ended a five-year dividend drought when it declared a 5-cent payout in December 2011. The last time the company had a 10-cent dividend was June 2006, Jay Cooney, a company spokesman, said in an e-mail.
Bloomberg analysts predict that Ford’s quarterly dividend may increase to 12 cents a share in 2014. The Bloomberg dividend estimates are based on criteria including a company’s guidance, dividend history, regression analysis and put-call parity.
One Ford ‘Testament’
“Our ability to double our dividend in one year is a testament to our One Ford plan, which has enabled us to maintain a solid balance sheet, while at the same time growing our business to provide our shareholders with more return on their investments,” Chief Financial Officer Bob Shanks said in the statement.
Moody’s Investors Service raised its rating on Ford to investment grade in May, one month after Fitch Ratings. Standard & Poor’s ranks Ford’s debt BB+, the highest level of speculative grade, with a positive outlook, according to data compiled by Bloomberg.
Ford’s increased dividend does not affect S&P’s ratings or outlook on the company, the New York-based company said today in a statement.
Ford avoided the bankruptcies that befell the predecessors of General Motors Co. (GM) and Chrysler Group LLC because it borrowed $23.4 billion in late 2006, less than four months after Mulally arrived from Boeing Co. (BA) The automaker put up all major assets, including its blue oval logo, as collateral. It recovered control of those assets in May after Moody’s followed Fitch in upgrading Ford’s debt to an investment-grade credit rating.
GM, the largest U.S. automaker, doesn’t pay a common dividend. Detroit-based GM rose 1.6 percent to $30.44, its highest closing price in almost 18 months.
A rising share price for GM would boost the U.S. Treasury Department, which pledged in December to sell its 500 million GM shares in the following 15 months.
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