Does Ford Motor Co. (NYSE: F | F Price Prediction) have enough cash now and going forward to pay its rich dividend? There should be a great deal of skepticism accorded to a complex and detailed examination of Ford’s financials. At risk is its current forward dividend yield of 5.22%, as provided by Yahoo. The figure is so high that it has become a primary reason to own the stock of the deeply troubled automaker.
Ford’s share price is not nearly as attractive as the dividend opportunity. In the past year, its shares are up just under 8%, compared to an increase of just over 14% for the S&P 500. The stock trades at $11.50.
A new analysis by The Wall Street Journal took into account what Ford calls its “adjusted free cash flow.” This number totaled $1.3 billion in the first half of the year. Its payout to shareholders for the period was $1.8 billion. The analysis says Ford’s financial reports are unique and should not be viewed the same as calculations made by most other large public companies.
The analysis also considers the huge payout the Ford family gets. A special Class B shareholder arrangement gives the Ford family 40% voting rights, even though the number of shares they own is only 2% of the total shares outstanding. “Class B shareholders received $55 million in dividend payments last year,” the paper reports.
Ford’s Financial Future
Ford faces several major headwinds that could significantly harm its financial future. It is forecast to lose nearly $5 billion this year in its electric vehicle (EV) segment. As it enters another stage of EV manufacturing, that figure could get worse.
Ford also has to overcome difficult competition in the United States. This includes Tesla, which still has almost 50% share of the market, and several large legacy car manufacturers, who will flood the market with new EV models. Ford also says it is extremely concerned about China’s EV dominance, pricing, and high quality.
The company also faces payouts to the UAW. Ford says that the contract will cost it $8.8 billion over its life, which ends in April 2028.
Finally, Ford faces the cost of tariffs. These could force it to increase what it charges customers. There is no guarantee that higher prices will not cut into sales. Alternatively, it could pay the tariffs without passing them on, which would harm its margins
If its dividend is a major reason people buy the stock, that incentive is at risk.
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