Ford Motor Company (NYSE:F) has resumed paying its quarterly dividend as of late October. That is when it last made a quarterly dividend announcement, so investors in F stock can expect to get another dividend announcement in late January 2022.
This has, and will continue to, significantly help shareholders who have been very patient with the company. They realize that Ford is making a transition to all-electric vehicles, as many other original equipment makers of cars and trucks are doing. So their resumption of a dividend shows management’s commitment to its shareholders.
Granted, the dividend was set at 10 cents per share. This is one-third below its previous 15 cents quarterly dividend that was discontinued in the first quarter of 2020. But that is looking at the glass from a half-empty standpoint.
Ford Can Afford Its Dividend
For example, now the company says that it can afford its dividend payment going forward. Here is the exact statement the company made in their third-quarter earnings report:
“Expects cash flow over current planning period to be more than sufficient to fund growth priorities; announces resumption of regular stock dividend in fourth quarter.”
In addition, the company said that it expects its full-year 2021 free cash flow (FCF) will be between $4.0 billion to $5.0 billion for the full year.
Now, since Ford now has about 4.036 billion diluted shares outstanding, its quarterly dividend will cost $403.6 million (i.e., 0.10 x 4.036b). That works out to just $1.614 billion on annual basis.
So you can see that even if FCF stayed flat next year, which is not likely, the dividend is clearly affordable. It takes up just a little over one-third (35.9%) of the forecast FCF at the midpoint, or $4.5 billion.
In fact, the shareholder letter went into further depth on the company’s spending plans. Ford’s chief financial officer, John Lawler, said that the company plans on spending $40 to $45 billion in strategic capital expenditures (CapEx).
This includes the period between 2020 and 2025. Since the company held off on significant spending during 2020 and 2021 this, so far, only includes $4.2 billion in CapEx spending.
As a result, most of that spending will occur from 2023 to 2025. So, even despite this, the board of directors felt it could begin regular dividend payments. This must mean it feels its cash flow will be significantly stronger next year.
Where This Leaves F Stock
The company’s resumption of a dividend was a very smart move by management. The move has had a very healthy effect on the F stock price.
For example, on Oct. 27, when the company made the dividend announcement, F stock was at $15.51 per share. That kicked off a major move higher for Ford stock. It peaked out at $21.45 on Dec. 10, a 38% increase in the stock price. Even at today’s price of $20.35, on Thursday, Dec. 16, F stock is up 31.2%.
The bottom line is that the dividend payment resumption made the stock price go up. So how high can it go?
Let’s assume that Ford is willing to raise the dividend 15% higher. That puts it at 46 cents annually. Assuming the stock has a 2.0% dividend yield at $23.00 per share, or 13% higher than today’s price of $20.35 per share.
And, of course, if Ford decides to raise the dividend higher than 15% next year, the stock will likely climb higher than $23 as well.
In any case, this puts Ford stock on a glide path to move higher as shareholders can expect a good return for their investment. Expect to see it rise anywhere from 13% to 20% higher over the next year as a result.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
