You can’t get a return loaning money to the government today. The 10-year U.S. Treasury note is yielding less than 0.5%.
But I know where you can get a 9% yield, and maybe more tomorrow. Ford Motor (NYSE:F).
Now, don’t run away. I’m serious. Ford opened March 9 at about $6 per share. The 15 cent per share quarterly dividend offers a yield of 9.2%. It costs Ford about $2.4 billion to pay out that dividend. There’s $34.7 billion in the bank.
Yes, I know that Ford has long-term debts. There’s over $100 billion of it on the books. Today’s low interest rates mean the debt is valuable, too.
The Doghouse
Ford is in the stock market doghouse for good reasons.
The last quarter was a disaster. Analysts felt blindsided both by the numbers and the outlook.
During the quarter Ford lost $1.67 billion, thanks to a $2.2 billion charge for pensions. Operations remain profitable.
For the full year, Ford ran at break-even, a profit of just $47 million on revenue of nearly $156 billion. That’s bad. No, that’s terrible. But Ford is not going out of business.
If you have been in Ford for five years, you’re down almost 60% on your investment, although you’ve earned $3 per share in dividends. This has InvestorPlace’s Will Ashworth asking if Ford is a hopeless cause.
Some investors are calling for CEO Jim Hackett to go. They note that the record of the stock under James Hackett is even worse than under his predecessor, Mark Fields.
The bad quarter had Morgan Stanley asking if the dividend is safe. Their conclusion was that it is.
The Turnaround
Hackett also acted.
Like a coach who has had a losing season, he promoted a new chief operating officer, Jim Farley. He’s a former Toyota Motor (NYSE:TM) executive. Farley wants to use on-board electronics to reduce warranty costs, make sure the product is right when it’s launched, and cut the marketing budget.
Ford is in the middle of an $11-billion plan Hackett designed years ago to turn it into an electric car company. Think Tesla (NASDAQ:TSLA), with better styling. Traditional sedans are being phased out. The plan was to turn profits from pick-ups and SUVs into cash to fund new electrics.
The key products for 2020 are a new Ford Bronco, a new F-150 pick-up and an electric Ford Mustang. Farley compares the current situation to 2008, the last time Ford’s back was against the wall. Unlike rival General Motors (NYSE:GM), Ford did not require a bailout.
Even while cutting Ford’s bond rating to junk status, Moody’s said Ford has “a sound balance sheet and liquidity position from which to operate.” The problem is that analysts no longer believe in Hackett, which is why he hired Farley.
The Bottom Line on F Stock
Ford would be expensive at $10 per share, and risky at $8 per share.
It has the financial strength to make it at $6 per share.
Once the initial panic of the oil price war eases off, investors are going to be wanting to find some yield. Ford offers yield. They’re going to want to see safety, and Ford is good for its yield. They’re going to want to see hope, something more like Tesla than General Motors. Ford offers that, an all-electric van that’s already selling in Europe and will be in America by 2022.
If Ford goes under, in other words, we have bigger problems than Ford.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
