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Ford Sets Stage for Returning Dividend

Thursday, 20 Oct 2011 | 2:20 PM ET
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It's no longer a question of whether Ford will reinstate a dividend for shareholders, but when the Dearborn automaker finally does it.

For months, the company has said that it would never consider paying out a dividend until the credit rating agencies restore Ford to investment grade status. But on a conference call with analysts and reporters to discuss the new contract between Ford and the UAW, Ford executives said an investment grade credit rating is not a requirement for a dividend.

Read between the lines and it's clear Ford will commit to the dividend sooner rather than later. My guess? Expect an announcement when Ford reports 3Q earnings next week.

When I asked Ford CEO Alan Mulally about restoring the dividend, he said, "No decision has been made, but the company is committed to making it happen."

So what can Ford shareholders expect for a payout?

Analyst Brian Johnson with Barclays Capital is projecting Ford will reinstate the dividend in the first quarter of next year. Johnson thinks the Ford dividend will be 8 cents/share in the first and second quarter of next year and 10 cents a share in the 3rd and 4th quarter. That would mean Ford's annual dividend next year would be 36 cents a share.

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Historically, Ford dividends have averaged a 33% payout and 2.6% dividend yield according to Johnson. If his prediction is right, the Ford dividend yield at the current stock price would be 3.1%

While there will be plenty of investors debating whether Ford is too generous or not generous enough with its dividend, the importance of the move can not be overstated. Ford dropped the dividend in September of 2006 when it was losing billions and reeling. It was right after the company brought in Alan Mulally to be CEO.

At the time a reporter asked him about what it would take to get Ford back to paying a dividend. Mulally said the company would have to first get its balance sheet in order and have true confidence about growing profits before it would be time for a dividend. Five years later, he's nearly achieved that goal, and Ford shareholders will be rewarded.

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___________________________ Questions? Comments? BehindTheWheel@cnbc.comand Follow me on Twitter @LeBeauCarNews

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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