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Ford Poised to Raise Dividend by 20 Percent Even as Profit Declines

Monday, 05 January 2015 04:07 PM

Ford Motor Co. is poised to raise its quarterly dividend 20 percent, the third boost in as many years, even as the automaker has said profit would decline for 2014.

The payout, now 12.5 cents a share, may be increased to 15 cents this week, according to a Bloomberg forecast. The Dearborn, Michigan-based company restored the dividend in 2012 at 5 cents after a hiatus of more than five years. The last increase, by 25 percent, was a year ago.

Chief Executive Officer Mark Fields told investors in September that 2014 pretax profit would fall to $6 billion, short of a goal of $7 billion to $8 billion, on higher recall costs, widening overseas losses and spending to introduce an aluminum-bodied F-150 pickup. The second-largest U.S. automaker has said it’s still committed to regularly raising the dividend.

“Our plan for dividends is to continue to grow regular dividends up to the point that we don’t believe this is sustainable,” Chief Financial Officer Bob Shanks told investors at a Sept. 29 meeting in Dearborn. “We don’t think we’re at that point today where we’ve reached the level where they’re not sustainable over a downturn.”

Susan Krusel, a Ford spokeswoman, declined to comment on whether the company’s board will consider a dividend increase this week.

“Our capital strategy continues to be focused on financing our plan, further strengthening our balance sheet and providing attractive returns to shareholders,” she said in an e-mailed statement.

The Bloomberg forecast is based on criteria including company guidance, dividend history, regression analysis and put-call parity.

Family Payout

The 15-cent forecast amount would pay $42.5 million annually to the founding family through its 70.9 million Class B shares, which give them control of the company. Family members including Executive Chairman Bill Ford, great-grandson of founder Henry Ford, are the exclusive owners of the Class B shares, which hold 40 percent voting power.

Ford’s common shares rose less than 1 percent last year, trailing the Standard & Poor’s 500 Index’s 11 percent gain.

Fields has indicated earnings will improve this year as Ford sells the revamped 2015 F-150, which is more fuel-efficient in part because its aluminum body makes it as much as 700 pounds (318 kilograms) lighter. Yet he’s also said North American profit margin will stay in the 8 percent to 9 percent range this year, down from more than 10 percent in 2013, because full production of the new truck probably won’t occur until 2015’s second half. The F-150 is the company’s most profitable model.

Lost Production

To install new factory tools for the truck, Ford shut down its two F-150 plants for 13 weeks last year, costing the automaker production of 90,000 of the pickups. It will lose more output this year as its F-150 plant near Kansas City, Missouri, takes six weeks to convert to the new model.

The $8,000 to $10,000 in gross profit each truck earns accounts for 90 percent of Ford’s global automotive earnings, Morgan Stanley has estimated. In 2013, Ford’s F-Series was the top-selling vehicle line in the U.S. for the 32nd consecutive year, with sales rising 18 percent to 763,402.

“Everyone knows how profitable the F-150 is for the company,” Shanks told analysts in October. “We have to remind ourselves that we don’t get both plants, Dearborn and Kansas City, up and running until we get into the second quarter. So clearly, the impact has an effect on what we’re seeing for the margins for the whole business unit” in North America.

Ford avoided the bankruptcies that befell General Motors Corp. and Chrysler in 2009 because it borrowed $23.4 billion in late 2006. Ford put up all major assets, including its blue oval logo, as collateral. It recovered control of those assets in May 2012 after Moody’s Investors Service followed Fitch Ratings in upgrading Ford’s debt from non-investment grade.

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Ford Motor Co. is poised to raise its quarterly dividend 20 percent, the third boost in as many years, even as the automaker has said profit would decline for 2014.
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Monday, 05 January 2015 04:07 PM
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