Welcome to the Stock of the Day.
While the rest of the market pulled back during the first few days of the year, Ford (F) hit the gas with a series of bullish announcements from the automaker. Now that Ford has just announced a 25% increase in its quarterly payment, is now time to buy? Find out now.
Ford is the quintessential story of American ingenuity. At the turn of the 20th century, Henry Ford perfected the assembly line and introduced the Model T to the American economy. And, the rest, they say is history: Over a century later, Ford has grown to be the second largest automaker in the U.S. and the fifth largest in the world. In addition to its namesake brand, this company also sells luxury cars under the Lincoln name. With over 171,000 employees worldwide, Ford brings in over $134 billion in sales every year.
Ford just announced that it’s hiking up this quarter’s dividend by 25% to 12.5 cents per share. Shareholders of record on January 31 (those that own shares at the close of January 28) will be paid on March 3. With the dividend increase Ford shares now yield 3.2%, making it one of the most generous dividends in the Major Auto Manufacturers industry. After the company cut its dividend in 2006 to 5 cents per share, Ford’s dividend has made a comeback. Since October 2012, the quarterly payment has nearly tripled.
Ford’s main competitors are Toyota (TM) and fellow Big Three player General Motors (GM). As mentioned earlier, Ford beats the competition in terms of its dividend yield; Toyota dishes out 2.1% annually while General Motors pays no dividend at all. But if you plug all three companies in my Portfolio Grader tool, you’ll see that both American car makers fall behind its Japanese rival when it comes to institutional buying pressure. I’ll discuss Ford’s grade in a moment, but General Motors is an outright sell due to a poor risk-to-return ratio (as shown by its D-rated Quantitative Grade), and abysmal fundamental health (D-rated Fundamental Grade).
Meanwhile, Toyota is a hold right now, despite strong operating margin growth, earnings growth and earnings momentum (with C-ratings for both Quantitative Grade and Fundamental Grade). So right now I don’t recommend any of the major automakers for new money.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Glancing back over the past twelve months’ worth of Portfolio Grader data on this stock, the picture is pretty clear: Ford stock had been stuck in a rut at a D-rated sell.
That’s mostly because the stock currently receives a D for its Quantitative Grade. At the same time, Ford has done a lot to improve sales growth, earnings momentum, earnings surprises, earnings revisions, cash flow and return on equity. The areas that the auto maker still needs to work on are operating margin growth and earnings growth. Averaging together these eight fundamental metrics, Ford receives a B for its Fundamental Grade.
Bottom Line: As of this posting I consider F a D-rated Sell. Despite some of the excitement surrounding the latest dividend hike, I wouldn’t buy right now because over the long haul the risk-to-return ratio isn’t looking good.