Ford Doubles Dividend—Is It Now an Income Stock?
Ford Motor said Thursday it will double its dividend as the U.S. auto industry continues on its long march back to blue-chip investment status.
Ford's board declared a first-quarter dividend of 10 cents a share on outstanding Class B and common stock, doubling the nickel a share it paid in each quarter of 2012. The automaker said it plans "to grow its dividend, consistent with earnings and liquidity growth, to a level that is sustainable through all business cycles."
The move comes just nine months after Ford restored its dividend in March, after a period of more than five years in which it paid no dividend at all.
The dividend increase boosts Ford's yield to 3 percent from 1.5 percent, which makes the stock desirable "to a new investor class" of income managers, wrote Jefferies analyst Peter Nesvold, in a note Thursday morning.
"Most income managers look for a 4 percent to 5 percent yield typically before initiating a new position," Nesvold wrote. "However, in some cases, such managers might accept a 3 percent yield if they believe there is sufficient share price appreciation. We think Ford now meets these criteria."
Nesvold said the increase "illustrates Ford's internal confidence in the amount of cash that will be required to execute its European restructuring plan." He has a buy rating and a $16 price target.
In pre-market trading Thursday, Ford shares, which closed Wednesday at $13.40, were up 3 percent, or 40 cents, to $13.87.
Through the first three quarters of 2012, Ford increased its liquidity position by $2 billion and generated 10 consecutive quarters of positive automotive operating-related cash flow. The first-quarter dividend is payable on March 1, 2013, to shareholders of record on Jan. 30, 2013.
On Wednesday, General Motors CEO Dan Akerson said the company hopes to regain its investment grade status this year, after eight years when its debt traded as junk. Akerson met with reporters in Detroit in advance of the Detroit Auto Show.
"Our goal is by the 2015 to '16 time frame to be single-A investment grade," said Akerson, according to The Detroit News. "Ultimately we have to be profitable in everything we do."
Shares in the two publicly traded Detroit automakers showed gains in 2012, with Ford up 17 percent and GM rising 38 percent. Both companies benefited from continuing strong U.S. auto sales and from the outlook for continuing gains in 2013.
—By TheStreet.com's Ted Reed
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