There are a lot of reasons Ford Motor Company (F -0.40%) isn't a great stock. The company battles in a competitive, historically low-margin business. Its stock price has largely spun its tires and moved nowhere for over a decade. Management is constantly battling higher costs and surprise charges. However, one reason remains to own Ford Motor Company: its dividend.
Here to stay
Take a quick glance at the graph below to get a grasp of how much value Ford's dividend has created for investors in the long term.
Let's cover one of the most glaring questions facing investors looking for income stocks: Is the dividend reliable? It's a fair question to ask, considering Ford's robust dividend yield of 5.2%, but Ford's dividend has historically been very stable other than dire circumstances such as the financial crisis. Further, the company has plenty of financial liquidity to fund the dividend even in economic downturns. At the end of the third quarter, Ford had nearly $28 billion in cash and roughly $46 billion in liquidity.
Another great thing about Ford is its commitment to delivering 40% to 50% of free cash flow to shareholders, which it does on a consistent basis through its dividend and supplemental dividends. In addition to its regular dividend, Ford often dishes out a special annual dividend, which was a significant $0.65-per-share chunk in 2023 after the company sold off its stake in Rivian. Ford also paid a supplemental dividend of $0.18 per share earlier this year -- for context, its regular quarterly dividend is $0.15 per share.
One overlooked aspect of Ford's dividend that many investors overlook is that it's aligned with the owners. That's right; the Ford family owns a special set of Ford shares that give it overwhelming voting power as well as dividends, and the Ford family has made it known that it loves its dividend income. That naturally means that the Family is pro-dividend decisions, more hesitant about share repurchases, and very much against dividend cuts or suspensions.
Upside remains
When it comes to Ford's dividend, investors also can look at near-term developments for the potential to increase free cash flow and the dividend. First, we have to consider that Ford and the broader industry will rapidly bring down the cost of electric vehicles (EVs), and once Ford can even break even on its model-e EV division, it will bring billions down to the bottom line.
Ford also has upside when it comes to cost control. For over a year, management has said it is billions behind the competition when it comes to costs, but still, each quarter, we hear about warranty and other costs weighing down profits. However, as Ford's cost-cutting measures gain traction, the company could generate more cash that could go to the dividend.
We can't mention upside without mentioning Ford's blossoming and high-margin commercial business, Ford Pro, which could generate historically strong margins and cash flow. Consider that during the first nine months of 2024 Ford Pro generated nearly $7.4 billion in earnings before interest and taxes (EBIT) on 14.6% margins, compared to Ford's traditional business, Ford Blue, which generated only $3.7 billion EBIT on 5% margins. As Ford continues to increase the take rate on its Ford Pro subscription services, it could push margins even higher.
What it all means
Ford is currently struggling a little bit with production efficiency, costs, and recalls that lead to higher warranty expenses. It operates in a challenging and capital-intensive industry in the middle of a complete transition from gasoline vehicles to electric vehicles. But one reason to own Ford will stay the same: its healthy and robust dividend.
