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I got into Ford (F) at the bottom of the recession, and I sometimes wonder why I have it. It has done nothing for me in terms of appreciation for some time.

But that's not the way to look at the company, it turns out. The board's recent move to hike the dividend, to 10 cents a share, shows that the future of Ford is as a yield stock.

Even with that relatively modest dividend, Ford is now yielding nearly 3%. Sterne Agee estimates it should earn $1.65/share this year, $1.90 next year, so that dividend is likely to be hiked again. The current dividend policy, if continued, would cost almost $1.6 billion, which is just one-quarter of earnings, a fair ratio.

The earnings have to support a debt-to-assets ratio of over 50%, but the level of assets is level, as is the level of debt. This is precisely what the balance sheet of a yield stock should look like.

Sterne Agee has a price target on F of $17, against the current $13.60, but the point today is that's not the point. You don't get into Ford for capital appreciation, not since the run-up from the bottom - the stock was at under $2/share at the bottom of the recession. Using that as an entry point you may be misled - the shares haven't increased in price appreciably in two years.

It's the return of the dividend that is the story here. If Sterne Agee's estimates are to be believed, there should be room for another hike, to 15 cents/quarter, by next year. Get in now, wait just a year, and suddenly you're looking at a very nice yield indeed.

Compare that with other investments in the group and Ford's attractiveness becomes more apparent. Toyota (TM) has a similar yield, 1.57%, but you're paying a premium PE of 18 for that - you can do better with Apple (AAPL). GM's (GM) government bail-out means it has barely any debt on the books at all, compared with Ford, but there is no yield. If GM added a dividend similar in size to that of Ford, which it can afford to do, you're still looking at half the yield Ford offers now, given GM's higher price. And that may be about all it can do right now.

The bottom line here is that Ford is a conservative investment, a solid dividend stock with some dividend upside. A lot of people like that sort of thing. But if you're into capital appreciation, do yourself a favor and look elsewhere.

Source: Ford's Future As A Yield Stock