Ford announced Thursday it is doubling the dividend it pays shareholders to 10 cents per share, surprising the investment community and pushing up the stock price.
The dividend is payable March 1 to shareholders of record on Jan. 30.
The move reflects the strength of the automaker's financial position: a combination of strong earnings, increased liquidity, and confidence the positive results will continue in 2013.
The increase comes nearly a year earlier than expectations, said Peter Nesvold, equity analyst with Jefferies & Co. Nesvold sees the decision by the board of directors as a "positive signal on European restructuring."
While sales remain poor in Europe, "we believe that Ford's board delayed the dividend decision previously until there was increased clarity on Europe," he said in a report.
"The decision suggests Ford's confidence internally has heightened regarding the cash costs of restructuring Europe," Nesvold said.
Ford is addressing overcapacity in Europe by closing plants, consolidating manufacturing and reducing its workforce.
Nesvold also expects the stock will attract income managers.
"The implied 3 percent yield now opens the stock up to an entirely new investor class," Nesvold said, noting income managers who tend to "look for a 4 percent to 5 percent yield typically before initiating a new position" but "might accept a 3 percent yield if they believe there is sufficient share price appreciation. We think Ford now meets these criteria."
The board of directors made the decision to raise the dividend from the 5-cent payout that has been in place since Ford restored the payouts last year with a pledge that the amount would increase with the financial strength of the automaker.
"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 chief financial officer, in a statement.
There were no payouts during the lean years when Ford stock was not investment-grade, thanks to its huge debt load. But the debt reflected the loans that helped Ford to weather the recession without relying on government aid, as rivals General Motors and Chrysler did. Ford also avoided following GM and Chrysler into bankruptcy protection in 2009.
Through the first three quarters of 2012, Ford increased its liquidity by $2 billion and generated 10 consecutive quarters of positive cash flow from its automotive operations. North America has become a strong revenue driver while Europe remains a money loser. Aggressive growth is underway in Asia, especially China, while Ford is working to overhaul its product lineup in South America.
Additionally, S&P Capital IQ raised its target price/earnings ratio for Ford substantially -- by $2 to $15 per share, equity analyst Efraim Levy said in a note. He cites the increased dividend, increased confidence in U.S. demand this year and products to come.
"We expect Ford to highlight its Lincoln brand and its latest technologies at the upcoming North American International Auto Show previewing next week," Levy said.
Ford is expected to announce its 2012 earnings later this month.
Distributed by MCT Information Services
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