Ford's souped-up dividend could lure new investors

Published on NewsOK Modified: January 10, 2013 at 4:29 pm •  Published: January 10, 2013
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Analyst Peter Nesvold of Jefferies said the decision to return more cash to shareholders indicates Ford executives believe they've correctly gauged the amount of cash needed to fix things in Europe. Ford's total annual dividend will rise to around $1.6 billion.

Nesvold raised his price target for Ford shares to $16.

But there are other problems. Ford lost market share in the U.S. last year. Some sales went to its Japanese competitors, who recovered from the 2011 earthquake. But sales of the new Ford Escape and Fusion, two of the company's most important products, also slumped after multiple recalls for safety problems. Ford has fixed those issues and expects market share to go up this year as new products go on sale.

The company is also facing a leadership transition soon. Chief Executive Alan Mulally is stepping back from day-to-day operations and handing the reins to longtime Ford executive Mark Fields, who became the company's chief operating officer in December. Although Mulally has said he will stay through 2014, some investors fear Ford will return to bad habits when Mulally is no longer overseeing things.

Finally, as an industrial company, Ford is more exposed to the economic cycle than, say, a utility company, which tends to have more consistent earnings and higher dividend yields.

Standard & Poor's said there were 1,262 dividend increases in the fourth quarter of last year, nearly double the total from the last quarter of 2011..

Ford said its liquidity has increased by $2 billion through the first three quarters of 2012. The dividend will be paid on March 1 to shareholders of record as of Jan. 30. The company said the last time it paid a 10-cent dividend was in June 2006. Management didn't rule out additional increases.

"Investors want to start seeing companies that are more confident in the sustainability of their earnings and taking action to respond to what has been a pretty clear message from the equity markets that shareholders want higher dividends," said David Bianco, Chief US Equity Strategist at Deutsche Bank, at a briefing with reporters Wednesday.

Deutsche Bank is forecasting that the Standard & Poor's 500 index will end 2013 at 1,575 a gain of about 10 percent in the year, moving higher, in part because investors will be lured by higher dividend payouts. Companies in the index are sitting on a record cash pile of $1 trillion according to data from S&P Dow Jones indices.

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AP Autos Writer Dee-Ann Durbin in Detroit and AP Business Writer Steve Rothwell in New York contributed to this report.