Ford Motor Co. (F - Analyst Report) surprised investors by doubling its quarterly dividend payment to 10 cents from 5 cents for the first quarter of the year. The news sent the stock to the highest level of $13.83 since July 2011.
The increased dividend will be paid on Mar 1 to shareholders of record as on Jan 30. The automaker last paid a dividend of 10 cents per share in June 2006, which was reduced to 5 cents in September 2006.
Ford is the only Detroit automaker that survived the global economic crisis without seeking bankruptcy protection unlike General Motors Company (GM - Analyst Report) and Chrysler.
Ford resumed its dividend payment at the beginning of 2012 after suspending it for more than five years in order to cope up with the impact of global economic crisis. The resumption of dividend came after posting the largest profit in 2011 since 1998.
Last year, the company regained its investment-grade ratings from two agencies, including Moody’s recently, and got its iconic blue oval back following the release of all the assets pledged while securing the $23.5 billion loan in 2006 for its turnaround plan.
The upgrade was driven by the company’s strong market position and higher profitability in North America, high cash balance, ability to match production with market demand and sound operating and financial management.
Ford lost its investment grade rating in 2005 soon before it borrowed $23.5 billion for restructuring in 2006. The automaker pledged all its domestic assets including the trademarks for its logo, the F-150 truck and the Mustang sports car for securing the loan.
Ford now made a comeback after six years by undertaking effective restructuring measures. The measures include cost reductions, renegotiating UAW contracts, and streamlining global operations.
The company’s latest decision to raise dividend is backed by its strong balance sheet, improved liquidity, promising business outlook and recovery in the automotive industry.
Ford had cash and marketable securities of $24.1 billion as of September 30, 2012, up from $20.8 billion in the corresponding period a year ago. Total Automotive debt was unchanged at $14.2 billion at the end of the quarter compared with the same at the end of the second quarter of the year.
The automaker made its last drawdown of low-cost loans for the development of advanced vehicle technologies in August and began repayment in September. The company also paid $600 million to its worldwide funded pension plans, including $500 million in discretionary payments to U.S. funded plans.
Auto sales in the U.S. grew 13.4% to the five-year high of 14.5 million vehicles in 2012 including a 9% rise to 1.4 million in December last year. A host of macroeconomic factors helped the industry reach the height. They include improving consumer confidence, falling unemployment and improvement in home sales and prices.
Sales were also fueled by strong pent-up demand, due to both aging vehicles (average age of a car reached 11 years in the U.S.) and the need to replace damaged vehicles from Hurricane Sandy. Banks were also friendlier as they offered greater access to loans with lower interest rates.
Ford’s sales edged up 4.7% to 2.3 million vehicles in 2012, including a 1.9% gain in December to 214,222 vehicles, as sales of some of its highest selling vehicles, Ford Escape SUV (2.6% gain) and Fusion sedan (2.7% decline), were hurt by vehicle safety recalls. However, the company’s market share reduced to 15.5% in 2012 from 16.8% in 2011.
Further, Ford expects to lose between $500 million and $600 million in 2012 in the 19 European markets covered by the automaker owing to the ongoing debt crisis in the region. The figure compared with a meager $27 million loss recorded by the company in 2011. It also expects market share in Europe to be lower than 8.3% in 2011.
However, the automaker expects to meet challenges in the U.S. and Europe by executing its “One Ford” plan. The company aims to revive sales by rolling out new models. It plans to launch as many as 6 new Lincoln models in the next 3 years, including a small car in 2014. It also plans to roll out as many as 20 new models in Europe over the next three years.
Ford is also pursuing a major expansion plan in emerging markets, primarily Argentina, Brazil, China, India and Thailand. The company expects Asia to account for 70% of its global growth in this decade, mostly from China and India.
The company revealed that it expects global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020, compared with 48% presently.
The stock currently retains a Zacks Rank #3 (Hold).