Ford dividend doubles in surprise on record profit margins

January 10, 2013 04:43 AM

Ford Motor Co., the second-largest U.S. automaker, doubled its quarterly dividend to 10 cents a share after record profit margins boosted its cash.

The first-quarter dividend will be payable March 1 to shareholders of record on Jan. 30, the Dearborn, Michigan-based automaker said today in a statement. Ford, which resumed paying a dividend last year after a five-year hiatus, cited its strengthening business as the reason for increasing the payout.

Ford earned $6.47 billion before taxes in North America in 2012’s first nine months, more than it made in the region for all of 2011. North America had an operating profit margin of 11.2 percent during the period in an industry where a 5 percent margin is respectable, as part of Chief Executive Officer Alan Mulally’s product-development plan known as One Ford.

“Ford put a plan in place to fix the company, they leveraged up and put a mortgage on the place to get it done, and they’ve executed that,” Matthew Stover, a Boston-based analyst with Guggenheim Securities LLC, said by telephone. “Now, they’re returning some capital.”

Ford rose 3,1 percent to $13.89 at 10:22 a.m. New York time. The shares had gained 4 percent this year through yesterday after rising 20 percent last year.

Ford has recorded 14 consecutive quarters of net income as it has boosted margins through its One Ford global product development plan. Mulally, 67, is trying to boost profits by selling the same models globally, rather than different versions for various regions. The strategy aims to leverage Ford’s economies of scale to improve profit margins.

Tops Expectations

“When I heard the news driving into work this morning, I got excited,” said Gary Bradshaw, fund manager for Dallas-based Hodges Capital Management, who has about 150,000 Ford shares and now is ready to buy more. “As soon as I heard it, I thought, ‘Man, now is the time to buy Ford, the stock is acting great.’”

Bradshaw said he now regrets reducing his Ford holdings last year after the automaker said it would lose $3 billion in Europe in 2012 and 2013. European woes and the sluggish U.S. recovery had weighed on Ford shares for much of last year, Bradshaw said.

The amount and timing of the dividend increase surprised some analysts.

“This announcement is larger than we expected,” Joseph Spak, an analyst for RBC Capital Markets, wrote today in a note to investors. “Today’s announcement shows strong confidence in their outlook, balance sheet and liquidity. We expect Ford to continue to grow the dividend with earnings and liquidity.”

Year Earlier

The doubling of Ford’s dividend occurred almost a year earlier than Jefferies Inc. expected, analyst Peter Nesvold wrote today in a research report. The New York-based analyst, who has a buy rating on Ford, increased his price target to $16 from $14.

Ford ended a five-year dividend drought when it declared a 5-cent payout in December 2011. The last time the company had a 10-cent dividend was June 2006, Jay Cooney, a company spokesman, said in an e-mail.

Bloomberg analysts predict that Ford’s quarterly dividend may increase to 12 cents a share in 2014. The Bloomberg dividend estimates are based on criteria including a company’s guidance, dividend history, regression analysis and put-call parity.

One Ford ‘Testament’

“Our ability to double our dividend in one year is a testament to our One Ford plan, which has enabled us to maintain a solid balance sheet, while at the same time growing our business to provide our shareholders with more return on their investments,” Chief Financial Officer Bob Shanks said in the statement.

Moody’s Investors Service raised its rating on Ford to investment grade in May, one month after Fitch Ratings. Standard & Poor’s ranks Ford’s debt BB+, the highest level of speculative grade, with a positive outlook, according to data compiled by Bloomberg.

The Ford family has 40 percent voting power through a special class of stock known as Class B. Executive Chairman Bill Ford, great-grandson of founder Henry Ford, holds 14.5 million Ford common shares and 4.23 million Class B shares, according to the company’s 2012 proxy statement. The family held 70.9 million Class B shares as of March 14.

Ford Family

“People will argue, particularly given what’s happened recently with tax rates if this is the smartest decision, but then they’ll also need to remember that there is a very significant family shareholder here that relies on these dividends for income,” said Stover, who has a neutral rating on Ford.

General Motors Co., the largest U.S. automaker, doesn’t pay a common dividend. Ford and Detroit-based GM are trading at their highest levels in more than 17 months.

A rising share price for GM would boost the U.S. Treasury Department, which pledged in December to sell its 500 million GM shares in the following 15 months.

Bloomberg News

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