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A Doubled Dividend Doesn’t Make Ford a Must-Buy Now

Despite its hot streak, too many problems loom in the short term


Last week, Ford (NYSE:F) and its shareholders took a victory lap. The automaker doubled its dividend, announced plans to hire 2,200 new white-collar workers and reported record December sales in China. But if you’re contemplating a new position in the stock, don’t miss the clouds outside those gleaming silver linings: F still faces some strong headwinds that can stall its growth.

Of course, all that good news drove the stock up nearly 5% last week as Goldman Sachs (NYSE:GS) upgraded it to a buy, and other prominent analysts raised price targets. The dividend hike will deliver a yield of about 3% — meaning Ford can now be considered an actual dividend stock.

But that label can cut both ways. With income investors always in the hunt for reliable payouts, a higher-octane dividend is a smart defensive move by Ford to maintain the stock’s attractiveness if the company’s growth sputters. And all automakers will have tough choices to make as younger consumers increasingly bypass their elders’ dreams of car ownership.

Let me be clear: I’m no Ford basher. I think Chairman and CEO Alan Mulally’s wizardry in bringing the iconic carmaker back from the brink could put the mythical Merlin to shame. The company has a strong lineup of winning products, and its new “One Manufacturing” platform could cut costs by 8% while boosting efficiency.

It doesn’t hurt that Mulally will be around until at least 2014 and has prepared for his succession by promoting his able apprentice, Mark Fields, to the newly created chief operating officer position effective Dec. 1.

If you’re in Ford now, those are among the many reasons it makes sense to hold. But if you’re contemplating a new position, the timing might not be in your favor. Since its one-year low last August, F is up a whopping 53%, and I think the euphoria is well priced in. Ford has a hard road over the next six to nine months that likely will knock the stock lower for the near term.

Here are four reasons Ford’s doubled dividend may not be a buy signal:

U.S. market share is slipping. At a time when pent-up demand is driving more customers to dealer showrooms, Ford’s share of the U.S. market is falling. Last year, it boasted a U.S. market share of nearly 17%. In 2012, that share has slipped to 15.5%. Some of the loss can be attributed to gains by Fiat‘s (PINK:FIATY) Chrysler, Toyota (NYSE:TM) and Volkswagen (PINK:VLKAY). Although Ford sales climbed by 5% year-over-year in 2012, that pales by comparison to Chrysler’s 21%, Toyota’s 27% and Volkswagen’s 35%.

Recall headaches. Last month, new COO Fields said its recent recalls haven’t hurt sales, but he hastened to add the company was working hard to keep up the positive perception of its quality. Ford’s new Escape crossover has had four recalls since it launched in July, and the company also issued recalls on the Fusion. As Toyota watchers know well, there’s a sort of “critical mass” issue when it comes to recall problems — and at a certain point, one more thing tips public perception. I don’t think Ford has yet reached that point, but 2012’s 24 separate recall campaigns grabbed the wrong kind of attention.

Slowing sales of big, profitable vehicles. Ford’s sales growth slipped to an anemic 1.9% in December, a troubling sign in a month where industry sales zoomed 14% above the same month a year earlier. Ford’s bigger challenge may be the vehicle mix that suffered most: Truck sales fell by more than 7% in December, led by declines in E-Series, Ranger and Transit Connect models. Even the superstar F-Series pickup scored gains of less than 1%. Ford’s SUV sales slipped by 3.4% in December, with Escape, Expedition and Flex declines wiping out 20% growth in the Explorer. Passenger cars performed well, but the struggling Lincoln luxury brand fell more than 12% for the month.

The European outlook remains bleak. Ford has said it expects its operations in Europe to post 2012 losses of $1.5 billion and another $1.5 billion this year. Ford may be low-balling this year’s estimates because the crisis in Europe is likely to get worse in 2013, not better. Vehicle sales in Western Europe declined 8.2% in 2012 — and posted a loss of 16.2% in December alone, according to LMC Automotive. The only bright spot was in the U.K., but a British think tank believes that country is facing a triple-dip recession this year. This is a problem for all carmakers, including General Motors (NYSE:GM), Chrysler, Toyota and others.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.

Article printed from InvestorPlace Media,

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