Activist investing and special situations.

Ford (F): Great Dividend Potential

Added on by Lee Ho Fook.

Be sure to check out our detailed stock analysis (click here). No one talks about Ford (F)'s impressive dividend, why is that? Sure the stock might be a great turnaround story in the auto industry, but it has an impressive dividend yield at 3.2%. Ford is a value stock and a bet on the global economic recovery. Remember that during the financial crisis of 2008-2009, Ford Motor was the only US auto company that didn't take a bailout. The company has one of the strongest balance sheets among the big three US auto companies. Be sure to check out our detailed stock analysis (click here).

Auto Sales Improving

For the month of February, Ford's auto sales were up 9% over last year. Sales gains were made with the Explorer and Escape SUVs, Fusion cars, and the F-Series trucks. The strength in the Ford brand gave the company its best February sales in 6 years. The one laggard among the Ford brands is the Lincoln division. Sales of the Lincoln brand continue to weaken with sales dropping 29%. Ford CEO Alan Mulally knows Lincoln is a problem and is determined to fix the beleaguered brand. A turnaround in Lincoln would give further upside for the stock. Luckily, the Ford brand more than makes up for any weakness from Lincoln (see how Ford is turning around Lincoln).

Strong Financials

Ford Motor has over $24.1 billion in cash on its balance sheet and a market cap of only $50.4 billion. The company has a forward P/E of 7.66 and an operating margin of 4.97%, which is very good for the auto sector. That operating margin looks set to improve with the One Ford Manufacturing Initiative.

This will allow the company to produce several models utilizing the same platform. The potential savings from this is enormous. Ford Motor also retained its Ford Motor Credit company through the financial crisis. Other auto companies had to selloff their financing arms to raise cash while Ford didn't. Ford Motor Credit is a cash cow and allows the company to finance its own auto sales. In looking at the company from a dividend investor's perspective, the company's cash hoard of over $24 billion would allow it to pay dividends for 126 straight quarters. The Ford family wants the dividends to continue to fund their lifestyle. The Ford family doesn't want to sell any stock as that would reduce their holdings and control of the company. If the global economic recovery continues, the dividend could actually increase and the Ford family would greatly welcome that. Earnings at Ford for 2013 are forecast to be $1.42 per share and $1.70 per share for 2014. The current dividend of 40 cents per share is more than covered by earnings without the company to tap its cash hoard. If earnings continue at this pace, look for the dividend to increase.

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