The Atlanta Journal-Constitution
Ford battlesWall Street over cherished dividend
Wall Street says Ford Motor must cut its dividend. The automaker says that’s nonsense.
The debate erupting over Ford’ s quarterly payout to shareholders — including the founding family that derives millions from the disbursements — is exposing a growing and contentious divide over what needs to be done to fix the ailing automaker.
Analysts at Morgan Stanley and Berenberg say Ford can no longer afford to pay the 15-cent dividend — the most generous among its automotive peers — as earnings evaporate overseas and the company initiates an $11 billion restructuring that it’s said will take as much as five years.
Ford Chief Financial Officer Bob Shanks responds that the carmaker has enough cash and income to cover the dividend, even in a downturn, in large part thanks to its healthy credit unit.
“The regular dividend is not at risk, and all those commentaries coming after the quarterly call — while I can understand the sentiment — are all baseless,” Shanks said .“We’ re very comfortable with our strategy on the dividend.”
The founding Ford family has a bit of skin in this game, of course. The dividend provides at least $42.5 million in annual income to owners of the Class B stock that only the progeny of Henry Ford can hold, which gives them 40 percent voting control over the company.
The pay out to the family is much higherwhen holdings of regular common stock are factored in. Executive Chairman Bill Ford, 61, and his cousin Edsel Ford II,
69, hold a total of nearly 7 million shares. As board members, only those two are required to disclose their common holdings.
When speaking on behalf of the family during the company’s annual meeting last year, Bill Ford told shareholders that “most of our networth is tied up in the company.” At this year’s meeting in May, Bill Ford joked about the importance of the dividend to his family while reading a question from an investor.
“Why is the company so stingy with paying dividends?” Bill Ford read during thewebcast meeting. He quipped: “Was that sent in by a member of the Ford family?”
Ford last reduced its dividend in July 2006 and then suspended it two months later, as truck and sport utility vehicle sales were collapsing amid rising gasoline prices. Thecompany resumedthe dividend in 2012 in the wake of being the only Detroit automaker to make it through the global
recession without resorting to a government-backed bankruptcy.
At 6.3 percent, Ford’s dividend yield ranks as the fifth-highest in the S&P 500 Index, according to data compiled by Bloomberg. The payout amounts to $2.4 billion annually.
Now the company is hoping to buck history and maintain the disbursement even during bad times. Ford seems to be in the thick of them already: Profit nearly fell by half in the second quarter as the automaker lost money in China, South America and Europe.
“This year will be the trough for us,” Shanks said. Updated vehicles arriving over the next two years “will start to turn the tide in improving our results.”
Analysts caution Ford may be living beyond itsmeans. Thecompany’s cash flow no longer covers the quarterly dividend, Berenberg analyst Alexander Haissl noted in an Aug. 6 report.
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