Explaining to your financially savvy friends why you own Ford (NYSE:F) stock now is no easy task. The share price went from bad to worse as the coronavirus from China spread globally. Supply-chain disruptions have made it difficult for automakers to produce vehicles. Plus, trying to sell cars and trucks is challenging when so many people are afraid to go out in public.
But at least there’s a generous dividend payout, right? Yeah, about that … as the facts will show, it’s about as easy to identify reasons to own F stock as it is to find bathroom tissue nowadays. Still, if you’re a glass-half-full type of investor, you might be able to justify picking up some shares and praying for a turnaround.
Going, Going, Gone
One of the strongest and most enduring attractions of Ford stock is its dividend. The last time I checked, Ford’s annual forward dividend yield was above 13%. That’s generous and suggests that a buy-and-hold strategy could justify owning Ford shares for the long haul.
However, that’s not much consolation to anyone who has owned the stock lately. The shares have taken a haircut of more than 50% in a brief span of time, plummeting from above $9 in early February to $4.33 on March 22.
You’d think that such a steep price decline would improve Ford’s valuation metrics, but that’s not the case. On a trailing 12-month basis, Ford’s earnings per share is a paltry 1 cent and its price-to-earnings ratio is a jaw-dropping 433.
Did you ever imagine there’d be a time when Ford’s P/E ratio is higher than that of most tech stocks? Thus, cheap as it is, Ford shares might not actually be a bargain.
Oh yeah, about that dividend … it looks like we’ll need to sit down and have a little chat about that.
Sadly, Ford is suspending its dividend. In doing so, the company cites a need “to preserve cash and provide additional flexibility in the current environment.” So for dividend investors, to quote a well-known Seinfeld character, “No soup for you.”
Factories Shut Down, Payments Delayed, Guidance Withdrawn
Let’s rewind for a moment and trace the chain of events at work here. The coronavirus precipitated health and safety concerns among auto workers. As a result, the United Auto Workers union ordered Ford to shutter its factories in the U.S. for two weeks. Ford complied with the union’s demands (or bowed to pressure, depending on whom you ask).
Of course, it’s awfully difficult to make money when your factories aren’t producing your flagship product. It’s only a two-week shutdown so far, but no one knows how long the coronavirus crisis might last. A couple of weeks could conceivably turn into months.
At around the same time, Ford announced a program in which the company will offer customers buying new vehicles an option to defer their first payment for half a year. That’s a long time before Ford starts to see the payments, and the company could benefit from a capital influx now rather than later.
Muddying the outlook further, Ford has withdrawn its fiscal guidance for 2020. That’s not exactly a confidence booster. Yet, despite all of the foregoing concerns, bold investors might still see the glass as half-full and take a chance on F stock. If the shares approach the $3 level, it will be hard to resist buying a few and holding them until the coronavirus outbreak is (hopefully) contained at some point in the future.
The Takeaway on F Stock
Make no mistake about it. If you buy Ford stock now, there’s a good chance you’ll get burned in the short term. Traders are likely to punish the company for suspending its dividend payouts and withdrawing 2020 guidance. But if you’re prepared to hold your nose and pick up some shares, at least you’ll be owning a stake in a big company at a small price.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
