Ford Motor: January Sales Decline Is Not A Game Changer For This Income Stock

| About: Ford Motor (F)


Ford's sales in the U.S. declined 2.6% Y/Y in January vs. a consensus estimate of a 2.4% decline.

January is traditionally not a strong month for car and truck sales.

Moderate economic growth and low gasoline prices should spur car, SUV, and pickup sales in the U.S. in 2016.

Ford yields 7.4%.

Ford Motor (NYSE:F) capped off 2015 with a strong sales month in the United States in December. For those of you who aren't following Ford's monthly sales updates closely, Ford Motor finished 2015 off with 8.4% Y/Y December sales growth in the U.S. Ford's total 2015 vehicle sales climbed 5.3% and were the highest since 2006.

2016 is widely expected to be a good year for Ford Motor, too. That's also why the automaker declared a $1.0 billion special dividend in January with which Ford demonstrated a high degree of confidence in this year's cash flow and earnings. Nonetheless, the stock languishes and has most lately fallen back to the low $11 price range.

Slow January sales are no reason for concern

Ford Motor released U.S. sales figures for the month of January last Tuesday. As expected, Ford's sales declined at a moderate rate, since January isn't usually a strong month for car and truck sales.

Ford's January sales in fact dipped 2.6% compared to last year. In January 2016, Ford Motor sold 173,723 vehicles compared to 178,351 vehicles in January 2015. Car sales slumped the most last month on a Y/Y basis as they were down 12.2% to 50,032 vehicles whereas utility sales picked up 4.1% and truck sales flatlined at 0.2%.

Though Ford's sales slumped seasonally and missed the consensus estimate of a 2.4% Y/Y decline, Ford is in as good a position to grow sales in 2016 as ever.

The U.S. economy continues to expand at a moderate rate, job gains were robust throughout 2015, and gas prices are low, which has a positive effect on consumer spending. In fact, the decline in oil and gasoline prices has the effect of a tax cut for American consumers, and their savings could very well circulate around and end up back in Ford's coffers again via the sale of SUVs and pickups. Ford has every reason to look forward to a year of more sales records in 2016 in the United States and abroad.

A special kind of yield play

Ford's declaration of a $1.0 billion special dividend last month has really turned the automaker's stock into a high-yield income vehicle. Based on a $0.15/share base dividend and a special dividend of $0.25/share, Ford's stock now yields ~7.4%. Even without the special dividend, Ford is an attractive yield play: The stock would yield 5.2%.

Ford expects a financially successful year but is also under pressure from General Motors (NYSE:GM) to return more cash to shareholders since GM has guided for accelerated capital returns in 2016 based on good profit expectations. General Motors has not declared a special dividend, but increased its base dividend by ~6% and announced a $4 billion increase in its stock buyback authorization in January. If Ford wants to compete with GM, it will have to do so in terms of capital returns, too.

Your Takeaway

Ford's 2016 January sales decline in the United States was widely expected, since January has historically been a slow month in terms of car and truck sales. Ford has also done exceptionally well in January 2015, so the bar was already set high.

General Motors' ambitious capital return program is leading the way in the auto industry, ramping up the pressure on Ford to follow GM's lead and ensure compelling cash returns to shareholders in 2016 and beyond. With or without Ford's special dividend, F is a solid income play.

Disclosure: I am/we are long F.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.