Ford Motor Company (F) Stock Is a Great Buy for Income Investors

Advertisement

Questionable third-quarter results, worries about a downturn in the auto industry and a general fear about economic uncertainty has taken shares of Ford Motor Company (NYSE:F) lower for most of the last month. However, with a dividend yield of over 5% Ford stock has been a popular pick among income investors, which leads to the question — is it time to sell F stock, or is there still money to be made with the great American automaker?

Ford Stock: Ford Motor Company (F) Is a Great Buy for Income Investors

Dicey Third Quarter Results for F

Ford’s third-quarter results were not necessarily good news for investors, but the company didn’t dole out a massive disappointment either.

Traders were expecting to see F stock stumble this quarter because the company had to pony up some $600 million to replace door latches in a massive 2.4 million vehicle recall.

The firm also updated its Kentucky plant in order to launch its new Super Duty pickup truck — so to say there were quite a few large expenses this quarter is an understatement.

The numbers certainly weren’t pretty, Ford’s net income fell 56% percent from the same quarter in 2015 and investors were understandably spooked.

However with that being said, the numbers don’t necessarily spell complete disaster for F and the worries weighing on the firm’s shares make Ford stock a relatively cheap income play.

And the good news is that much of what brought Ford’s North American sales lower is unlikely to have a major impact on the fourth quarter, so F stock is likely to see a lift when those results come out.

The recall isn’t expected to impact Ford at all in the fourth quarter and the issues with the Super Duty rollout won’t be nearly as expensive as they were in the third.

What About Demand for Ford Stock?

It’s true that the U.S. auto sector is headed for a low in the coming years as demand wanes. However, that doesn’t mean that all automakers are going to tank — people will still buy vehicles, it’s just a question of how well automakers are able to protect their margins when demand is low.

Ford is planning to slow its production in order to cope with a more difficult sales environment.

Many investors have turned away from the auto industry after the disaster that was 2008, but it’s important to consider that automakers are much better equipped to deal with a cyclical downturn than they were eight years ago.

Ford is also making progress abroad in both Europe and Asia. In Europe, Ford raked in $138 million worth of pre-tax profit and the firm maintained its stronghold on the market as Europe’s best-selling commercial vehicle brand. In Asia-Pacific, sales topped 1 million units and the company made inroads to India’s car-sharing economy by investing in Zoomcar.

These figures are solid reminders that Ford isn’t just its North American sales and investors should consider the firm’s successes in other countries as well.

What About That Juicy Dividend?

Perhaps the most enticing thing about Ford stock is the company’s impressive 5.2% dividend yield. There is some question as to whether or not Ford will be able to continue paying such a high dividend, but the company’s financials show that F has enough free cash flow to ease investors’ minds. In 2015 the firm generated $8.9 billion from its operations, and has a dividend payout ratio of 42% which is fairly consistent with the company’s peers.

Ford is a cheap income buy right now, due in large part to investors’ fears that the auto industry will see a repeat of the 2008 carnage. While markets are certainly facing some uncertainty at the moment and the auto industry is likely to experience a cyclical downturn in the future, Ford is strong enough to withstand a shaky period.

A stock with a price-to-earnings ratio of 5.64% and a dividend yield of 5.3% doesn’t come around often- so income investors should jump at the chance.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2016/11/ford-motor-company-f-stock-buy-ipmedia/.

©2024 InvestorPlace Media, LLC