(F - Get Report)
is now on much stronger financial footing than anyone would have guessed just a few years ago. Debt has been reduced, cash reserves have been built up, and profit margins are back at pre-crisis levels.
To show off its new financial muscle, Ford has even begun paying a 5-cent quarterly dividend again, good for an annual payout of 20 cents and a 1.6% yield.
That's not good enough. Ford is earning $1.50 to $2 a share these days and should be earning $3 a share or more when the global economy is truly healthy. How about targeting a 30% payout ratio? That implies a current dividend of around $0.50 (good for a 4% yield). And by mid-decade, that would translate into a $0.90 annual payout, which works out to be a 7.3% yield.
If shares continue to languish in the low teens, management may just get peeved enough to radically boost the payout from its current paltry levels.
I also featured Ford in "
5 Cheap Stocks for an Auto Industry Renaissance
Financial services company
(WU - Get Report)
has started to run out of growth opportunities. Sales steadily rose throughout the last decade, reaching $5.3 billion by 2008. Yet four years later, they're likely to be less than 10% higher to a projected $5.8 billion in 2012.
In lieu of robust growth opportunities, management has instead begun to return more cash to shareholders. Western Union used to pay out a tiny nickel-a-share dividend, but it boosted it to 25 cents a share in 2010 and 31 cents in 2011, and
it's been hiked again
this year to 40 cents a share.
In the words of Oliver Twist: "Please sir, some more." Heck, any company that routinely earns $1.50 to $2 a share can afford to part with 60 cents or even 70 cents a share. Management would find that as the yield rises towards the 4% mark, a whole new class of investors would open up for the company.
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At the time of publication, author had no positions in stocks mentioned.