E Ford: Why The 6.5% Dividend Might Not Be Safe In A Recession

Ford Motor (F) is an iconic American company, having been in business since 1903. The Ford’s produced Model T was one of the most popular early cars. The vehicle was designed to withstand the rugged early roads across the U.S. The car was also very affordable allowing regular people access to motorized transportation.

Fast forward to today, Ford is the second largest car and truck manufacturer in the U.S. The company controlled more than 14% of market share in the U.S. last year. Ford trades with a market capitalization of $37 billion, generated $145 billion in sales last year and offers a dividend yield of 6.5%.

Still, investors buying Ford today need to understand that the company is far from a defensive name in times of a recession. Based on the company’s performance during the last recession, we believe it is possible that Ford’s dividend could be at risk in the next recession.

Last Recession Performance

Automotive sales are highly correlated to the health of the economy. In times of growth, consumers have more capital to spend and the confidence to make a new car purchase. When the economy is trending down, consumers tend to hold off on making new, large purchases. In a recession, consumers find alternative ways to acquire transportation or spend to keep their old cars running longer.

While each time is different, let’s examine how Ford performed during the last recession in order to gain an understanding of how the company will hold up in the next one.

This played out heading into the last recession. Below are Ford’s adjusted earnings-per-share totals before, during and after the last recession.

  • 2004 adjusted earnings-per-share: $2.13
  • 2005 adjusted earnings-per-share: $1.25
  • 2006 adjusted earnings-per-share: $1.50
  • 2007 adjusted earnings-per-share: $0.19
  • 2008 adjusted earnings-per-share: $3.13
  • 2009 adjusted earnings-per-share: $0.00
  • 2010 adjusted earnings-per-share: $1.91
  • 2011 adjusted earnings-per-share: $1.95
  • 2018 adjusted earnings-per-share: $1.30
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