Sometimes high dividend yields indicate that inventory is a bargain. It probably means that you need to cut your dividends, not Ford Motor.
Ford says if President Trump’s new import duties persist, it will overturn revenues. Dividend reductions could be possible based on Ford’s latest profitability guidance. If Trump expands tariffs beyond what is already in effect, payment cuts could be much greater than the market expects.
At $10 per share, Ford shares have a dividend yield of 6%. This is based on a regular quarterly dividend of 15 cents per share. This has remained constant since mid-2022 and does not include the 15 cent supplemental dividend paid this month. It was in 2020 that Ford halted its dividends completely after the pandemic broke out. Before that, its usual quarterly dividend was 15 cents per share.
By comparison, General Motors’ dividend yield is around 1%, while Tesla does not pay dividends. Stellantis, the Dutch company that manufactures Chrysler vehicles, has recently exceeded its dividend by more than half, with its yield of 6%. Stellantis paid more cash on dividends and stock buybacks last year than it acquired, but it had negative free cash flow. It said it expects positive free cash flow this year, targeting dividend payment rates of 25% to 30% of annual net income.
Ford easily covered its dividend last year. Net income was $5.9 billion, up 36%, paying a dividend of $3.1 billion. Ford’s guidance for 2025 did not include net profit figures, but its profitability is on a downtrend.
Ford estimates that free cash flow (using its own non-standard definition) in 2025 will range from $3.5 billion to $4.5 billion. Importantly, Ford said the guidance was not considered for any recent release or future tariffs by the US or other governments. Last year, Ford’s free cash flow was $6.7 billion, more than doubled its dividend payments. However, Ford defines free cash flow, but the number is decreasing.
Ford spent $426 million on stock buybacks last year. Combining them with dividend payments, the $3.5 billion shareholder distribution corresponded to the lowest stage of free cash flow guidance this year. As things stand, Ford’s capital returns trajectory this year will be lower.
Ford says it covers shareholder distributions, including dividends and buybacks of 40% to 50% of free cash flow. So even the high end of that guidance shows dividend cuts. How big it becomes depends heavily on how hard the tariffs are hit. Ford has so far paid dividends of around $1.2 billion, including supplementary payments. Guidance for 2025 includes dividends and stock buybacks of between $1.4 billion and $2.25 billion.
Ford has several levers to pull to release cash for distribution. While investment in the electric vehicle business may be slower, demand is disappointing, but that includes trade-offs. EVs are a small percentage of Ford’s sales. But at least they are growing, but sales of internal competitive vehicles are declining. Suspending your investment risks further falling into rivals.
Ford shares rose 1% this year, beating the S&P 500, falling 4%. Analysts surveyed on average by Visible Alpha expect Ford’s regular dividend to fall from 15 cents now to 12 cents in the next quarter. It’s easy to tell that it’s too expensive. Similar to Ford’s guidance, estimates do not appear to be burned with possible tariff effects.
The Trump administration’s 25% import duties on most goods from Canada and Mexico came into effect on March 4th. It suspended these duties until April 2nd on automobiles and other goods subject to tax-exempt trade under previous trade agreements. Trump says he won’t allow another extension. He also imposed new tariffs on all steel and aluminum imports, and before that, goods from China. The impact on Ford is profound. Each tariff encouraged retaliation from other countries, and the administration pledged more tariff measures on April 2.
Anyone who expresses his opinion believes that Trump is the person who expresses his opinion. It’s a tall order to try and guess what he’s thinking and translate it into a dividend forecast. But for ordinary investors, here’s what’s important. Ford’s dividends are high risk.
Write to Jonathan Weil at jonathan.weil@wsj.com
