Bouncing Back, Five Cents at a Time

12/13/2011 9:30 am EST

Focus: STOCKS

It’s a bright day for income investors and for the US auto industry when one of the world’s top car companies has not only regained its footing, but has increased its shareholder value, writes Chris Preston of Wyatt Research.

After a five-year hiatus, Ford Motor Co. (F) is reinstating its dividends. The nation’s No. 2 automaker announced that it will begin paying dividends to investors for the first time since September 2006 starting on March 1. Not surprisingly, the dividend payments will be modest to start, at five cents a share.

Ford suspended its dividends five years ago when the company nearly went bankrupt like fellow Detroit automakers General Motors (GM) and Chrysler. So the fact that the much-maligned company is bringing its dividends back is a sign that its financial health may finally be improving.

The company that coined the phrase “Built Ford Tough” has been profitable for nine straight quarters, earning $1.8 billion, or 46 cents a share, in the most recent quarter. With its profits going up, Ford’s stock has become increasingly undervalued, trading at 6.53 times earnings at the moment.

The question is: Will Ford be able to sustain its dividend payments this time? The company’s dividends held steady at ten cents a share for years prior to 2006. That’s when they suddenly plummeted and eventually disappeared as the US auto industry went into financial freefall.

Chief Financial Officer Lewis Booth insists things are different now, telling The Wall Street Journal that the dividends are “sustainable” now that Ford has “substantially restructured the company.”

Part of that restructuring was new CEO Alan Mulally’s approval of $23.5 billion in borrowed money intended to provide a cushion in case of another economic downturn. That, combined with the automaker’s improving balance sheet and liquidity, may make the company’s dividends a little more “Ford tough” this time around.

Read more from Wyatt Research here…

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