Why Ford's Dividend Play Is a Good Idea
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Me, I like a company with a little brag to it. I want to see some swagger out of the firm's into which I put my money. So should you, frankly. I can take boring companies. I can take a brash company. I can even take confusing companies. But I absolutely cannot abide timid companies.
Seriously, it's a competitive world out there. A firm has to have leadership that is confident and bold to succeed in today's market. Nowhere is that more apparent than in the auto industry. I'm not telling you anything you don't know when I say that automakers have had one heck of a rough couple of years. I'm not certain any industry got demolished worse than car makers during the recent unpleasantness.
That's why it's so refreshing to see Ford (NYSE: F) commit to its long term success the way it did this morning when it announced that it is doubling its dividend. Admittedly, that's all the way to 10 cents per share, but still, it's doing it. The corporate leadership is confident that the firm's recent gains, such as a great December and a Q3 profit of $1.6 billion, are going to be around for a long time. That sort of statement is a real confidence builder to me.
The simple truth is that Ford came through the troubles about as well as could be expected. Remember, it was only in 2005 that the company's bonds were junk-rated. Then a series of truly astonishing losses in the 11-figure range (!!!) happened, then the great recession. I wouldn't have blamed anyone for being bearish on Ford at that point.
Still, the firm pulled through. It rejected a government bailout that its competition took and developed a plan. Now that plan is coming to fruition and shareholders are going to start reaping some profits on it. Honestly, in late 2008 Ford's stock dropped below $1.50 per share. It's been through the mill since then, but the stock is sitting at $13.79 as I type this (Jan. 10, 2013) and I see no reason to believe it can't go quite a bit higher.
How is Ford different from some of the competition? Let's take a quick look.
General Motors (NYSE: GM)
Now, this is a firm that DID take a government bailout. While it's done fine, it's still digging its way out of the deep hole it was in. An EPS of just 2.66 and still no dividend makes it look like a weak pick. I'm told by many that it'll do well, but at the close the firm's stock was at $30.60. That significantly up from a yearly low of $18.72 in July, but it's not enough for me to pick any up.
Honda (NYSE: HMC)
Honda's had a wild ride this year. Back in March 2012 it topped out at $38.22 and it's just getting back to that level now. The firm has both raised and lowered its dividend this year, to the confusion of everyone. But back in October it did have to lower its expectations by about 10%. Not a happy time. The stock's up right now, but it's been down recently, too. Be wary but optimistic. Management is usually pretty good at Honda, so there's no reason to be completely pessimistic.
Toyota (NYSE: TM)
This is actually a solid play. Toyota has done well with its latest cars and the stock shows it. Over the year it's grown more than 50%, though oddly the firm did lower its high dividend from 76 cents to 73. The firm's vehicles have been hit with a god-awful number of recalls in the last twelve months, including one that called back more than 7 million vehicles. That was just one of seven. The biggest problem with buying Toyota is that I think the value is already built into the price.
I've heard some of those fools on cable news saying today that this is a sign of desperation for Ford. That the company has to boost its dividend in order to keep its share price up. The only thing I hear that's desperate is the talking head's need to fill their airtime with something that sounds good, whether they have any real knowledge or not. Ford's move is more brag than desperate hope. That's how I read it, even if others may disagree.
Even with the price of Ford increasing there's still time for you to get involved in what I see as real time of growth. A good quarter three, as mentioned above, and a good December, lead me to believe that a good fourth quarter is coming. Ford announces its earnings before the open on January 29. If you can buy before that day and Ford announces a second strong quarter in a row, I see no reason you won't be pretty happy with your investment.
Mind you, I'm not making a short-term buy recommendation, here. As I've said before, I don't generally invest for the short term. That's just a way to run up some broker's commissions. I even felt that way when I WAS a broker. I had clients I advised to STOP their churn and just sit patiently. And that's what you should do if you put some money into Ford. Buy it, hold it, watch it grow.
It's not like people are going to stop driving. Most of the world is not predicated on people driving to work, to school and to shopping. Ford is just well positioned to take advantage of that. That's why they're bragging about it. That's why I like to hear them brag. You should, too.
Nate Wooley owns shares of Ford. The Motley Fool recommends Ford and General Motors Company. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!