Ford Motor Company (NYSE: F) is one of the most iconic automakers in the history of the industry. But its rich history has failed to generate investor riches. In fact, while the broader S&P 500 has moved 176% higher over the past decade, Ford's stock price has delivered a 36% decline.
Once lauded for trudging through the Great Recession on its own dime, rebounding and producing record profits, its wheels have only spun in place for years. There's still one major reason to own Ford stock, though, despite these lackluster results: its valuable dividend. The payout is family-backed, boosted by special dividends, and a long-term wealth generator.
The dividend difference
Savvy income investors know the long-term wealth-creating power of dividends, especially when reinvested. Look at the total value returned by Ford when including dividends, compared to its stock price gains alone.
The difference is stark, almost unbelievable. And investors can rest assured that Ford's dividend is here to stay. Here are a few reasons why.
Ford is all-in on dividends
When it comes to investors looking for passive income, there aren't many better options than Ford. The automaker is a cash-printing machine thanks to the dominance of its larger trucks and SUVs that power high-margin sales.
Operating cash flow in the second quarter was a vibrant $5.5 billion, with a strong balance sheet of nearly $27 billion in cash and roughly $45 billion in liquidity. The company has committed to returning 40% to 50% of adjusted free cash flow (FCF) to shareholders, and a vast majority of that capital, if not all of it, will be in the form of dividends and not share buybacks.
It's family-backed
That's because Ford's dividend is essentially backed by the Ford family, which owns a separate class of shares that come with 40% voting power as well as dividends. It's well established that the family enjoys the wealth that it receives from dividends, and it's one very likely reason the company will continue to focus on returning value this way rather than through share buybacks.
That wouldn't return value to the Ford family, since only common stock would be involved in a share buyback. Thus, the shrinking share count and higher return on future dividends would only be felt in common shares. Every dollar spent on buybacks is a dollar that won't be spent on dividends.
The family's ability to receive so much value through dividends is also why the payout won't be cut unless dire circumstances arise -- which, to be fair, has happened on multiple occasions.
Not only does the $0.15 quarterly dividend provide a robust 5.36% yield, investors can also count on numerous supplemental dividends over time. The past couple of years are an example. During the fourth-quarter earnings call, Ford announced an $0.18-per-share supplemental dividend; the year before, it was a hefty $0.65 per share.
Unfortunately, the markets have proved hesitant to invest in the iconic Detroit automaker despite its rebound from the Great Recession and the record profits. And major challenges remain in the near term.
Ford is struggling in China and burning billions on the development of its electric vehicle division. The company faces challenges in reducing the complexity of its vehicles; it needs improved production efficiency, and management must lower costs.
But despite all the headwinds, the one reason to own shares of Ford will remain: its high-yield, wealth-generating dividend.
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Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The Only Reason to Own Ford Stock Right Now was originally published by The Motley Fool