You don’t need a chauffeur to be driven insane — owning Ford Motor Company (NYSE:F), which has fallen 11% in three months, will get you there.
Down 10% in 12 months, screams bemoaning F stock been commonplace over the past year, compared with the 15% returns delivered by rival General Motors Company (NYSE:GM).
Meanwhile, 14-year-old Tesla Inc (NASDAQ:TSLA) — which just raced passed Ford in market value — has surged 44% year-to-date. It doesn’t matter if Tesla makes money. CEO Elon Musk has energized investors with the company’s technology and growth potential — something Ford is still struggling to do.
Though maybe Wall Street will take Musk’s grumpy suggestion that disgruntled investors buy Ford stock instead.
F Stock and the Dividend
At this point, is there any other reason to own Ford than for its strong payout?
Admittedly, I’ve been a strong supporter of the Detroit-based automaker, recommending its shares on multiple occasions this year. The so-called Trump trade and its associated pro-American policies was a major catalyst. But Ford continues to drive in reverse. F shares closed Tuesday at $11.28 — just shy of its 52-week low of $11.07.
And as F stock falls, the dividend yield grows.
Indeed, Ford currently yields 5.3%, versus just 2% for the S&P 500 index. And while a forward price-to-earnings ratio of just 7 is dirt-cheap (compared to 18 for the S&P 500), it’s certainly cheap for a reason. Fiscal 2017 consensus estimates of $1.59 per share is projected to decline 9.6% year over year. And based on fiscal 2018 estimates of $1.67, this would still mark a more than 5% decline from 2016.
The reason for the slowing earning growth? Besides the fact that there are signs that the North American new-vehicle market has plateaued, automakers are notoriously challenged when it comes to profit margins. In the case of Ford, even if the company sells near-record levels for the next couple of quarters, large discounts will continue to chip away at its bottom line. To its credit, the company has recognized its struggles and its working to improve the model.
Technology improvements and a march toward driverless vehicles is a good start. But it’s difficult to expect Ford to leapfrog Tesla and tech powers like Alphabet Inc (NASDAQ:GOOGL) subsidiary Google in that regard.
That’s to say nothing about the advances has already made in that arena. Uber’s ride-hailing advances has already catapulted its valuation north of $60 billion, compared to $45 billion for Ford, which has seen its market cap reduced by $7 billion since March.
Bottom Line for Ford Stock
Like its corporate slogan, “Built Ford Tough,” owning F stock requires nerves of steel. Although CEO Mark Fields has begun to focus on automotive technologies to drive growth into the 21st century, there’s no evidence that Ford will get out of neutral.
As such, the strong dividend yield — once a badge of pride and consistency — will soon resemble a scar from a dwindling stock price.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
