I saw a headline recently that got me thinking about Ford Motor Company (NYSE:F) and the woeful state of F stock.

Ford’s Dividend Is The Only Reason To Buy blurted the headline, and while the assertion is arguably true, it also makes me wonder about Ford’s capital allocation decisions in recent years.

Here’s why.

Free Cash Flow

A quick look at Ford’s annual free cash flow — the bucket from which dividends flow — shows that it’s $12.8 billion, the highest level in the past decade. In 2016, paid out $3.4 billion in dividends, double what it paid out just three years earlier.

That’s some growth. 

Yet its dividend payments were just 26.3% of free cash flow. Three years earlier, dividend payments accounted for 40.9% of free cash flow. If you’re an income investor that’s a very positive development because it suggests the annual dividend of 60 cents that’s currently yielding 5.2% is safe.

Furthermore, with so much free cash flow at its disposal, it appears the special cash dividend paid in recent years—25 cents in 2016 and 5 cents this year—is also available should Ford management see fit to give shareholders a bonus reward for their interminable patience. 

As Seeking Alpha author Robert Riesen points out in his article I referenced at the outset, F stock has the 12th highest yield in the S&P 500.

As Ford’s not going out of business anytime soon, it does make an excellent defensive play, but it’s not a growth stock.

Is F Stock a Value Play?

InvestorPlace’s Vince Martin doesn’t think so. Recently, Martin named F stock along with General Motors Company (NYSE:GM) as two of ten value traps to avoid at all costs.

“At the moment, both F and GM look like stocks to sell outright,” wrote Martin. “Between secular changes in the industry and more near-term problems — such as a glut of used cars and lower demand from fleet operators — both stocks look cheap for very good reasons.”

Martin’s three short paragraphs tell you all you need to know about the state of Ford stock. Wise words to consider.

But let’s assume for a minute that he’s wrong and F stock is the biggest value play to come along in automotive history.

Why Isn’t Ford Buying?

Circling back to my desire to understand Ford management capital allocation decisions, I see that the company has repurchased $2.6 billion of its stock since 2012, 76% of the buybacks happening in 2014 and just $274 million in the two years since.

Am I missing something?

Ford’s big buyback in 2014 was done primarily to offset the dilutive effect of issuing 103 million shares to settle the conversion of its 4.25% Senior Convertible Notes. The remaining 13 million shares repurchased was to offset the dilutive effect of share-based employee compensation.

Ford paid $16.93 for each of the 116 million shares it repurchased in 2014. Why, when its shares have since fallen below $12, is it not using some of its record free cash flow to buy its shares?

Harvard Business Review contributor Alfred Rappaport recently tackled the question of what U.S. companies should do if Congress ever passes a tax holiday on its foreign cash.

“Buy back shares only when they are meaningfully undervalued and no better opportunities to invest in the business exist,” wrote the Northwestern University business professor.

So, by this standard, either we’re to assume that Ford management feels the opportunities to invest its free cash flow in the business will deliver better returns on capital or it feels its shares aren’t meaningfully undervalued.

Bottom Line on F Stock

If you’re a Ford shareholder or are considering buying Ford stock, the company’s failure to repurchase its shares in any significant manner should be alarming.

To trust that Ford’s going to invest its free cash flow in its business in a meaningful way is sheer fantasy. Capital expenditures have not wavered from $7 billion in recent years, despite the need to innovate faster. 

At least in the case of GM, it’s repurchased $16.8 billion of its stock over the past five years. It’s no wonder, then, that GM stock has outperformed F stock by 646 basis points annually over this period.

When it comes to capital allocation, Ford’s stuck in neutral. Management better start buying its stock in a meaningful way, or single digits won’t be too far away.

You can take that to the bank.

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