Ford (NYSE:F) stock has steadily fallen over the last few years. Demand for hybrid and electric vehicles as well as trade and job concerns have brought uncertainty. Moreover, rising costs have led to declining profits. However, a generalized stock recovery from December lows has taken the Ford stock price today to around $10 per share.
Trade-related issues and changing tastes continue to affect F stock. Still, with a low valuation and a 6.05% dividend, Ford’s response to today’s market conditions make it an intriguing play despite the risks.
Automakers have stuck to cars amid the rising popularity of trucks and SUVs. Observers have also rightly criticized Ford for waiting too long to adopt new technologies.
Stark Contrast to the Past
Still, Ford has shown its willingness to embrace a future that stands in stark contrast to its past. Last year, it made the courageous but probably correct decision to phase out sales of most coupes and sedans in North America. Cars had remained a mainstay in the Ford lineup for as long as anyone can remember. Still, trucks and SUVs account for the majority of its profits in its home market. Hence, this move can only help investors.
So can its move this week to cut more than 12,000 jobs in Europe, where it’s been struggling for a while. Barron’s described it as part of an effort by Ford to pivot toward electrical vehicles and autonomous driving. Which segues into …
Ford’s future, as has finally begun to develop both hybrid and electric vehicles. The company offers two hybrids and one electric car currently, and it will build both a hybrid and an electric version of the Ford Escape in 2020. It has also partnered with Volkswagen (OTCMKTS:VWAGY) to develop self-driving car technology. Earlier this month, executive chairman Bill Ford opened a company mobility and autonomous driving technology research center in Tel Aviv.
There’s Good Reason why Ford Stock is Cheap …
Despite these wise strategic moves, investors should also realize that F stock remains low for a reason. Ford has lagged peers such as Tesla (NASDAQ:TSLA) and Toyota (NYSE:TM) in developing the electric and hybrid vehicles that many consumers demand today.
Moreover, some have speculated that car sales will suffer as more people rely on ride-sharing companies such as Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) for local transportation needs. Related to this trend is a fatigue with long commutes. This has led many to choose to live in walkable communities, which presumably reduces the dependence on cars.
Ford also faces some uncertainty of the U.S.-China trade war. Unlike GM (NYSE:GM), North America remains Ford’s largest market with about 65.3% of overall sales. However, the Asia-Pacific region accounted for around 8.4% of company revenue in 2018. Hence, significant disruptions could still hurt F.
… Yet, F Stock Price Offers Cash and Value
Still, despite these concerns, I see F stock as a buy for investors focused on income. With a dividend yield above 6%, it offers a payout almost three times the average of the S&P 500 index. The annual dividend of 60 cents per share is down from 73 cents a share in 2018. This dip in payout might concern some investors. However, with so few stocks matching that yield, it should remain attractive. Also, even the most pessimistic of earnings estimates leaves enough cash to maintain the payout through at least 2021.
Moreover, the Ford stock price today may also benefit growth investors. The PE multiple comes in well below the stock’s five-year average multiple of 9.96x. If the trade dispute ends, or sales and profits consistently beat estimates, returning to or even beyond that average remains likely.
Also, analysts may have blown some often-mentioned concerns out of proportion. Though many worry that ride-sharing adoption will hurt car sales, studies don’t support that assumption.
Furthermore, even with walkable cities, people still want to visit places only accessible by car. Admittedly, such a lifestyle change could slow the car replacement cycle. Still, the age of the average car has risen for some time and stands at 11.8 years now. The industry has learned how to deal with slowing replacement cycles. For this reason, I do not see this trend as a significant concern.
Bottom Line on Ford Stock
Ford stock has become a low-risk play for income investors. Yes, the car maker presents a risk as it contends with moves to hybrid and electric vehicles and consumers who opt for more use of ride-sharing apps.
However, with a 6%+ dividend yield and a forward PE ratio of 7.35x, investors buy a significant source of cash flow at a low price. Moreover, once trade disputes are resolved, the multiple could rise back into the double digits. For risk-tolerant investors wanting cash flow, the Ford stock price today offers income as well as a plausible path to capital gains.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.