Ford dealership. Source: Flickr
Ford Motor Company (NYSE:F) has been a dividend-paying stock since fiscal 2012 and the company pays cash dividends on a quarterly basis.
Therefore, Ford’s common stock shareholders will receive a quarterly cash dividend on the company’s common stocks.
However, Ford has suspended its dividend payments starting in fiscal 1Q 2020 because of the COVID-19 pandemic.
Here is an excerpt extracted from Ford’s 2020 annual filings regarding its dividend suspension policy:
- To ensure we maintained sufficient cash reserves during the COVID-19 pandemic, suspension of the regular quarterly dividend was announced on March 19, 2020.
The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash, and current and anticipated cash needs.
We are not sure how long the dividend suspension will last and when Ford will resume its cash dividend payout again.
But one thing is for sure, Ford’s automotive sales have recovered tremendously in fiscal 2020 and going into the end of 2021.
The recovery in Ford’s automotive segment has returned to and even exceeded that of the pre-pandemic level as of 1st half of 2021, driven mainly by strong demand for large and medium-size trucks and SUVs.
For this reason, Ford has projected a record amount of profits and free cash flow for fiscal 2021.
Additionally, Ford’s stock price has hit $14 USD per share at the time this article was published, a record high for the company.
Therefore, things are looking hopeful and if the recovery can continue at this pace, Ford will likely reinstate its cash dividend payments in 2021.
In this article, we are going to find out whether Ford can afford to pay a cash dividend for fiscal 2021 based on the company’s projected profits and free cash flow.
Let’s dive in!
Ford’s Trailing Dividend Yield
Ford dividend yield
* Dividend yields are calculated on a trailing 12-month (TTM) basis and include all Ford’s special dividends.
Let’s first look at Ford Motor’s historical dividend yield as shown in the chart above for the period from 2015 to 2021.
Historically, Ford’s dividend yield hovered around 6% on average for the last 6 years.
During the onset of the COVID-19 pandemic, Ford’s dividend yield soared beyond 12%, thanks to the plummeting stock prices.
However, Ford’s dividend yield started to plummet from its high of 12% to only 4% in Q2 2020 after Ford announced a dividend suspension in March 2020.
The dividend yield continued to decline for the rest of 2020 and plunged to as low as 2% by the end of 2020.
The plummeting dividend yield was attributed partly to the recovery in Ford’s stock price and also the declining dividend rate as Ford has not reinstated its cash dividend payment in subsequent quarters in 2020.
As of August 2021, Ford’s dividend yield amounts to 0% when the TTM dividend rate was at $0 USD per share.
For your information, it has been more than 1 year or consecutively 4 quarters since Ford last paid a cash dividend, thereby leading to the $0 dividend rate on a TTM basis.
Ford’s Dividend History
Ford annual dividend declared
* Dividend rates are obtained from Ford’s financial reports and include all Ford’s special dividends.
* Ford’s fiscal year begins on Jan 1 and ends on Dec 31.
The chart above shows Ford’s yearly historical dividend payments that dated back to 2012.
For your information, Ford did not pay any dividends prior to 2012 but has paid cash dividends between 2000 and 2006.
As such, Ford has suspended its dividend payment between 2006 and 2012.
Nevertheless, Ford has started to be a dividend-paying company again in fiscal 2012 at a dividend rate of $0.20 USD per share.
In subsequent years, Ford’s cash dividends continued to soar and topped out at $0.85 USD per share in fiscal 2016.
However, the dividend amount had remained flat between fiscal 2016 and 2019 at about $0.70 USD per share on average, due possibly to the challenging business environment.
In fiscal 2020, Ford’s cash dividend amounted to only $0.15 USD per share, primarily driven by the dividend suspension which started in 2Q 2020.
Ford’s cash dividend suspension was still being enforced at the time this article was published.
Ford’s Cash Payments For Dividends
Ford’s cash payments for dividends
* Cash payments for dividends are obtained from Ford’s statements of cash flow and include all cash payments for Ford’s special dividends and dividends for minority interest.
In terms of cash payments for dividends, Ford paid about $2 billion in cash for dividend payments on a yearly basis.
Ford paid the most cash for dividends at more than $3 billion in fiscal 2016.
In fiscal 2020, Ford paid only $596 million in cash for dividends.
Ford’s FY2021 Outlook
Ford’s FY2021 outlook
* Ford’s FY2021 outlook is obtained from the company’s 2Q 2021 earnings release.
To find out if Ford can afford to reinstate its cash dividend for FY2021, we need to know about the company’s projected profits and free cash flow.
As shown in the snapshot above, Ford’s earnings or the adjusted EBIT is estimated to be between $9.0 and $10.0 billion, a significantly higher figure than that of FY2020.
Similarly, Ford’s adjusted free cash flow (FCF) is projected to be between $4.0 and $5.0 billion for FY2021, also significantly higher than that of FY2020.
In short, Ford expects to make a record amount of profit and free cash flow in fiscal 2021.
Ford’s Projected Profits For FY2021
Ford’s adjusted earnings
* Ford’s projected EBIT for FY2021 is obtained from the company’s 2Q 2021 earnings release while the historical figures are obtained from the company’s prior earnings releases.
The chart above shows Ford’s adjusted EBIT, interest on debt and adjusted EBT for fiscal 2021 and prior fiscal years.
Figures for FY2021 are projected numbers while figures for prior fiscal years are historical numbers.
According to the chart, Ford’s FY2021 adjusted EBIT will be significantly higher than that of FY2020 and the estimated results were last seen in FY2017.
By the end of FY2021, Ford’s adjusted EBIT will be $9.5 billion, a record high number projected by the company.
On the other hand, assuming that Ford’s interest on debt in FY2021 will be about the same level as that in FY2020, Ford will incur an estimated interest on debt of $1.6 billion.
The projected interest on debt for FY2021 is quite realistic given that Ford has already incurred interest on debt of nearly $1 billion year-to-date.
Therefore, Ford’s estimated adjusted-EBT or earning before taxes will be about $7.9 billion after accounting for the expected interest on debt expense.
Ford’s Projected Free Cash Flow For FY2021
Ford’s adjusted free cash flow
* Ford’s projected FCF for FY2021 is obtained from the company’s 2Q 2021 earnings release while the historical figures are obtained from the company’s prior earnings releases.
Ford’s adjusted free cash flow had already accounted for the company’s capital spending while excluding the cash flow that comes from Ford Credit.
Therefore, Ford’s adjusted free cash flow is nearly the same as the free cash flow generated by the company’s automotive segment.
The adjusted free cash flow is an important metric in our evaluation of Ford’s cash dividend payment.
That said, Ford’s ability to pay a cash dividend will rest on the amount of adjusted free cash flow being generated in FY2021.
According to the chart, Ford expects to generate about $4.5 billion of adjusted free cash flow, an enormous amount compared to that of FY202.
The level of adjusted free cash flow estimated in FY2021 was last seen in FY2017.
In short, Ford expects to make a record amount of adjusted free cash flow for FY2021, one that excludes the cash flow from Ford Credit.
Ford’s Cash Dividends Payout For FY2021
|Fiscal Year||Cash Payment For Dividends And Dividend Equivalents ($ Millions)||Diluted Shares Outstanding (In Millions)||Dividend Declared Per Common Share ($ USD)|
* Ford’s cash dividends for FY2021 is calculated by the author based on the FY2019 cash dividend results.
To find out how much cash dividend Ford can afford to pay, let’s take the figures from FY2019 which are shown in the table above.
In FY2019, Ford paid out roughly $2.4 billion of cash for dividends and dividend equivalents.
In the same fiscal year, Ford’s diluted shares outstanding totaled about 4.0 billion and this amounts to a dividend rate of about $0.60 USD per share.
Let’s assume that Ford were to pay the same amount of cash dividend for FY2021, Ford’s cash payments will total about $2.4 billion and the dividend rate will be about the same at $0.60 USD per share.
Ford’s diluted shares outstanding has not changed much in the last 5 years and therefore, the dividend rate for FY2021 will be about the same as that of FY2019.
In short, we are trying to find out if Ford can afford to pay the same amount of cash dividend in FY2021 as the one in FY2019.
Ford’s Dividend Payout Ratio
|Fiscal Year||Cash Payment For Dividends And Dividend Equivalents ($ Millions)||Adjusted EBIT ($ Millions)||Adjusted EBT ($ Millions)||Adjusted FCF ($ Millions)||Adjusted EBIT Payout Ratio (%)||Adjusted EBT Payout Ratio (%)||Adjusted FCF Payout Ratio (%)|
* Ford’s dividend payout ratio for FY2021 is calculated by the author based on projected results given by the company.
The earnings and free cash flow data in the table above is exactly the same as that in the chart above that we saw in prior discussions.
That said, Ford’s projected dividend payout ratios for FY2021 with respect to earnings and free cash flow are significantly lower than that of FY2019.
For example, Ford’s FY2021 dividend payout ratios clock in at 25.3% and 53.3% with respect to adjusted EBIT and free cash flow, respectively, which are much lower than the figures of FY2019.
In other words, if Ford could afford to pay the cash dividends in FY2019, then the company should have no problem paying the same amount of cash dividends in FY2021 given the higher profits and free cash flow projected for FY2021.
Ford’s Forward Dividend Yield
|Fiscal Year||Ford’s Stock Price ($ USD)||Dividend Declared Per Common Share ($ USD)||Forward Dividend Yield (%)|
* Ford’s forward dividend yield for FY2021 is calculated by the author based on the projected results.
As Ford can definitely afford to pay a cash dividend of $0.60 USD per share now based on the FY2021 forecast, the dividend yield will be at a massive 4.2% based on today’s stock price of $14 USD per share.
If you buy Ford’s stock today at $14 USD per share, and Ford declares a cash dividend with a rate of $0.60 USD per share throughout FY2021, your dividend yield will come to 4.2%.
While Ford has suspended the dividend payments since FY2020, the company can definitely afford to resume the cash dividend in FY2021, judging from the strong earnings and free cash flow projected by the company for FY2021.
Ford’s projected FY2021 earnings and free cash flow are even higher than the pre-pandemic level, driven primarily by pent-up demand for its automotive products.
In FY2019, Ford paid a cash dividend totaling $2.4 billion and if Ford were to pay out the same amount of cash dividend in FY2021, the company can definitely afford to do so.
At a cash dividend amount of $2.4 billion, Ford’s dividend rate will be $0.60 USD per share and the dividend yield will come to about 4.2% based on a stock price of $14.
Therefore, Ford can reinstate the much-waited dividends now.
References and Credits
1. All financial figures in this article were obtained and referenced from Ford’s quarterly and annual financial reports which are available on the following websites: Ford’s Financials and Filings.
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The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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