Ford Stock Is a Reliable High-Yield Play (F)


Ford (F) is about as American as apple pie and hot dogs on the Fourth of July, but an expanding international presence could be one of the innovations that helps save Ford stock from what some see as a difficult road ahead for the automaker.

Ford logo ford stock gmThere’s been a lot of talk about the demise of American car manufacturers and the automotive industry in general, as people turn to car-sharing and taxi-like services such as Uber.

But this isn’t the first time people have sounded the death knell for the auto industry. And it probably won’t be the last.

Following are a few reasons I think Ford stock will stay the course and even make headway — despite some choppy waters.

Expansion in China/Asia Pacific

Ford projects that in 10 years, 60% of its global sales will come from Asia Pacific, more specifically China, India and the ASEAN. No surprise, here, especially seeing as China is both the world’s largest economy and the world’s largest automotive market.

For Ford, this means renewed focus and investment in a part of the world that has experienced an undeniable growth spurt. Over the past few years, F has added seven manufacturing facilities in China, bringing the total number of plants to 10.

There has been some concern over China’s slowed economy, and a slight decrease in the number of vehicles sold has caused F to adjust its production output. Still, Ford Asia Pacific President David Schoch remains sanguine.

“We have seen a little slowdown in showroom traffic over the last several months, but I look at China on a longer-term basis,” Schoch said.

He added that Ford doesn’t plan to cut prices significantly on any of its vehicles.

In 2013, Ford sold 23 million vehicles in China. By 2020, F expects that number to grow to 32 million. According to Schoch, 7% industry growth is sustainable in China — even despite the slowdown.

The Mighty F-150

Naturally, one of Ford’s strengths is going to be its F-150 truck. The Ford F-150 has been the best-selling truck in North America for the past four decades, and it has become an iconic part of the American workforce.

For the 2015 model, Ford gave its famed truck a makeover. Ford reduced the truck’s weight by 700 pounds, gave it a lightweight aluminum body to increase fuel efficiency and expanded towing and hauling capacities.

Ford did run into one problem: The new trucks were so popular dealers couldn’t keep them on the lots. When the new F-150 was introduced in January and promptly sold out, F found itself with the issue of having to retool factories to meet the demand.

That’s a good problem to have.

The F-150 far outsells any other truck in North America and accounts for a whopping half of all Ford’s North American profits — in general, trucks and larger vehicles tend to be the margin-makers for automotive companies.

Thus, high demand for the F-150 — not to mention encouraging sales of Ford’s Explorer sport utility vehicle and Edge crossover — is very bullish for Ford stock.

The Numbers

The numbers bode well for Ford stock holders on a pair of fronts: growth and income.

Ford’s profits for the current fiscal year are expected to jump 37% to $1.59 per share, followed by a smaller (but still robust) 18% gain to $1.88 in 2016. All told, Ford is expected to average 17% earnings growth over the next five years.

Not bad considering Ford stock trades at just 8 times next year’s estimated earnings.

Meanwhile, Ford has quickly become a powerhouse on the dividend front. Since reinstating its dividend in 2012 at a clip of 5 cents per share quarterly, the payout on Ford stock has tripled to its current 15 cents per share. That’s good for a nearly 4% yield — nearing yields you typically have to jump into MLPs and REITs to get.

Bottom Line

Ford has set its sights on the undeniable economic power of Asia Pacific, particularly China, which should help drive sales growth for years to come. Meanwhile, back at home, its F-150 is still the belle of the ball.

And with all this potential, you still get a hefty quarterly dividend check.

For now, Ford stock looks like a solid buy.

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

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