Ford Dividend Analysis: Attractive 6.6% Yield, But A Recession Could Spell Trouble

Some investors are very focused on owning stocks with very high dividend yields. The attraction to high yields makes sense as they provide shareholders with a much higher income than do lower-yielding stocks. You can see our full list of stocks offering at least a 5% dividend yield here.

Investors do need to be careful when choosing to purchase stocks with higher yields, as this is sometimes a warning sign that the company is facing difficulties that could result in a reduction of the dividend payment down the road. If the reason for investing in a particular stock is due to income needs, a dividend reduction could be devastating to the investor.

High-yielding stocks might be seeing earnings growth slow down or decline. At the same time, high-yield stocks that are struggling to grow earnings are at risk of cutting their dividend if the business fundamentals deteriorate. Therefore, investors need to look past the high dividend yield and examine the company’s business model to determine whether the dividend is sustainable before making an investment decision.

This is particularly important if a recession hits the U.S. economy. Increasing a dividend during a period of growth is one thing, but being able to maintain payments to shareholders during a severe economic downturn shows that the company’s business is able to withstand a recessions.

Ford Motor (F) stock has a high dividend yield of 6.6%, which is very attractive for income investors. But while the dividend appears sustainable today, it could be in trouble should the U.S. economy enter a deep downturn.

Business Overview

Ford was founded by Henry Ford and 12 others in 1903. Ford was very interested in understanding how machines worked from a very early age. At the age of 12, he began working in a small machine in Michigan. By 15, he built his first steam engine. By the late 1890s, Ford completed the first Ford engine, a one-cylinder gasoline model, in the kitchen of his Detroit home. The Quadricycle, which used a later version of this original engine strapped to four bicycle wheels, would become Ford’s first car. The first Ford car sale occurred on July 15th, 1903.

The company’s famous Model T went into production in 1908. The car was very affordable and durable. Because there were fewer than 18,000 miles of paved road in the U.S. at the time, Ford used a light and strong steel alloys for important components so that the car could withstand the bump and grind of primitive roads. Mass production allowed Ford to market the car to the masses, helping the company to sell more than 15 million units through 1927 when production of the Model T ended.

Today, Ford is one of the world’s largest automakers and is the second-largest domestic automaker. The company operates a manufacturing division, which produces popular cars, like the Mustang, trucks, like the F-150 and SUVs, like the Explorer, and a financing division. Ford trades with a market capitalization of $35 billion and generates $148 billion in annual revenues.

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