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Ford doubles quarterly dividend as Europe downturn worries ease

January 10, 2013|By Jerry Hirsch
  • Ford Motor Co. will double its quarterly dividend to 10 cents a share.
Ford Motor Co. will double its quarterly dividend to 10 cents a share. (Tim Boyle / Bloomberg )

Ford Motor Co. declared a first-quarter dividend of $0.10 per share, double the quarterly dividend it paid last year.

The automaker had only reinstated paying dividends last year as preserved cash to survive the recession and U.S. auto industry restructuring of recent years.

“Our ability to double our dividend in one year is a testament to our One Ford plan, which has enabled us to maintain a solid balance sheet, while at the same time growing our business to provide our shareholders with more return on their investments,” said Bob Shanks, Ford’s chief financial officer.

Ford’s move came about a year earlier than many analysts expected and is a good sign of the automakers fiscal health.

The automaker’s board had considered raising the dividend previously, said Peter Nesvold, an analyst with Jefferies & Co., “but then the European sales outlook deteriorated materially” as much of the continent slipped into recession.

“We believe the board had shelved the dividend idea at that time until there was increased clarity on the cash restructuring needs to right the ship in Europe,” he said.

The willingness to give shareholders more cash is a sign that Ford believes it has the funds to weather the downturn in Europe.

The higher dividend also is a plus for Ford’s stock.

“Ford’s 3.0% [dividend] yield now opens up the stock to an entirely new investor class: income managers,” Nesvold said. “While there’s no bright line test, most income managers look for a 4% to 5% yield typically before initiating a new position. However, in some cases, such managers might accept a 3% yield if they believe there is sufficient share price appreciation. Ford now meets these criteria.”

Nesvold raised his target price for Ford shares to $16 from $14 while Efraim Levy, the  analyst at S&P Capital IQ raised his target by $2 to $15. 

In early trading Ford shares rose 39 cents, or 3%, to $13.86.

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