Auto maker Ford Motor ( F) has spent a hefty $24 billion over the past five years to modernize its manufacturing plants, build a major presence in China and develop a range of new models that will be hitting showrooms over the next year or two. Management has also been paying down debt (the auto maker has a $63 billion smaller debt load than it did at the end of 2007), to the point that current levels are just about right.
With all of those heavy expenditures now complete, Ford has just begun to pay a lot more attention to a dividend that was eliminated at the end of 2006. Ford paid out a nickel a share to investors in 2011, 20 cents a share in 2012, 40 cents a share in the current year -- and a little math shows that this payout can go much higher.>>3 Big Stocks on Traders' Radars Let's assume that Ford starts to earmark 35% of its cash flow to its dividend -- a payout ratio that is still below the level that many companies target. Ford has averaged $7 billion in operating cash flow annually over the past three year, and if 35% ($2.45 billion) of that went to dividends, then the dividend would rise to 64 cents a share, working out to a 4.2% dividend yield. Yet it's the forward view that counts. Ford's North American operations generate nearly $10 billion in operating cash flow, but major losses in Europe are dragging down overall results. If you assume that Ford's European operations will move toward break-even over the next few years, and if you assume that U.S. auto sales will rise another 10% from current levels by 2015 (to around 17 million units), then Ford looks set to generate at least $10 billion in total operating cash flow by then. At that point, Ford's dividend would approach almost $1 a share, assuming that 35% payout ratio is the target. That's a 6.5% yield, in relation to the current stock price.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV