Regular readers will know we love our dividend on Simply Wall St, which is why it’s interesting to see Ford Motor Company (NYSE:F) will be trading ex-dividends in the next 4 days. Ex-dividend date is one working day before the company’s listing date, which is the date on which the company determines which shareholders are entitled to receive dividends. The ex-dividend date is important because every transaction on the stock must be completed before the listing date in order to be eligible for a dividend. Accordingly, Ford Motor investors who purchase shares on or after April 25 will not receive the dividends that will be paid on June 1.
The company’s subsequent dividend payout is US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Looking at the distribution of the last 12 months, Ford Motor has a final yield of about 2.5% of its current stock price of $16.15. We love seeing the company pay dividends, but it’s also important to make sure that laying golden eggs won’t kill our golden goose! So we need to investigate whether Ford Motor can afford to pay its dividends, and whether its dividends can grow.
Check out our latest analysis for Ford Motor
Dividends are usually paid out of a company’s earnings, so if a company pays more than it earns, the dividend is usually a higher risk of being cut. Ford Motor pays only 2.2% of profit after tax, which is very low and leaves plenty of breathing room in the event of an adverse event. A useful secondary check can evaluate whether Ford Motor generates sufficient free cash flow to pay its dividends. The good news is that it only paid out 4.2% of its free cash flow last year.
It is encouraging to see that dividends are covered by profits and cash flow. This generally indicates that the dividend is sustainable, as long as earnings do not drop drastically.
Click here to view the company’s payout ratios, plus analyst estimates of future dividends.
Have Profits and Dividends Growed?
Companies with consistently growing earnings per share generally make the best dividend stocks, because they usually find it easier to grow dividends per share. If the business goes into a downturn and dividends are cut, the company could see its value drop drastically. It is encouraging to see that Ford Motor has grown its revenue rapidly, up 31% per year for the last five years. Ford Motor looks like a truly thriving company, with earnings per share growing at a rapid pace and the company reinvesting most of its profits in the business.
The primary way most investors will assess a company’s dividend outlook is by examining the historical rate of dividend growth. Since the beginning of our data, 10 years ago, Ford Motor has increased its dividend by an average of 7.2% per year. It’s encouraging to see companies lifting dividends while earnings grow, demonstrating at least some of the company’s interest in rewarding shareholders.
Should investors buy Ford Motor for the upcoming dividend? Ford Motor has increased its earnings per share while reinvesting its business. Unfortunately it cut dividends at least once in the last 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an interesting combination and deserves further research.
On that note, you want to research what risks Ford Motor faces. To help with this, we have found 5 warning signs for Ford Motor (2 is a bit worrying!) that you should pay attention to before buying stocks.
A common investment mistake is buying the first interesting stock you see. Here you can find complete list of high-yielding dividend stocks.
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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our article is not intended as financial advice. This does not constitute a recommendation to buy or sell any stock, and does not take into account your goals, or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not account for price-sensitive company announcements or recent qualitative material. Simply Wall St has no positions in any of the stocks mentioned.