[Editor’s note: After this article was written, Ford decided to suspend North American production to lessen workers’ danger of being exposed to coronavirus.]
The most important question to ask about any potential investment today is whether the coronavirus from China might drive it under. I don’t think the virus is going to drive Ford Motor (NYSE:F) stock under.
At the end of December, Ford had $34.6 billion of cash and equivalents on its books. It had $2.9 billion of capital spending during the quarter and $17 billion for the whole year. While $39.7 billion of sales is unachievable, this quarter or next, the 15-cent-per-share dividend is affordable, costing $600 million.
If the dividend can be maintained through the crisis, buying F stock today will give you a yield of over 11% during the next 12 months, based on its current price of about $5.
That may be a big if.
Will the Dividend Survive?
Speculation that the dividend will be cut is keeping the stock price low.
RBC Capital Markets is predicting a cut or suspension. They see free cash flow dropping to zero during the panic, and management looking at survival rather than the stock.
Before the crisis hit, Morgan Stanley predicted that Ford would maintain its dividend. They estimated free cash flow for the year at $2.4 billion — enough to maintain the payout. They were keeping an “overweight” rating on the stock.
In ordinary times, there would be no reason to expect a cut. But these are not ordinary times. Protecting cash would seem to be the byword of the moment, even if the Federal Reserve is telling business it has its back. Ford has substantial operations in China, impacting its finances in the current quarter. The spread of the virus to Europe and North America will certainly impact it in the next quarter.
Some bearish analysts have gone so far as to predict a bankruptcy filing. They see customers as unable to pay back their loans, which Ford carries on its books as debt, to the tune of $100 billion.
My own view is that if a suspension happens, it will be a brief one. Ford will be under pressure from the Trump Administration not to do it.
Fighting It Together
Ford has joined Fiat Chrysler (NYSE:FCAU), General Motors (NYSE:GM) and the United Auto Workers in a “task force” aimed at protecting workers through the pandemic. The automakers intend to keep making cars, knowing that when demand snaps back, it will be in a hurry.
There’s a lot to work on. A production line has thousands of touch points. People must get into and out of the job site. You must feed them and set up a plan for screening them. They have families to take care of. Office workers have, naturally, been told to work from home.
Securing the Future for F Stock
The last time I looked at Ford, I saw promise in the hiring of Jim Farley as Chief Operating Officer. Farley is a former Toyota Motor (NYSE:TM) executive, charged with dealing with operational and quality problems.
Farley started work March 1 and will now pocket $2.5 million in stock, even if he’s not chosen as Jim Hackett’s successor. The next several weeks may determine that. If Farley can keep the lines moving, he’s certain to get the job.
Farley’s mantra is “Fix, accelerate, grow.” If he can get the company’s transition to electrics on track, and keep the cars operating, you will make money on him.
In a down market it’s something worth speculating on.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.