Wall Street was wrong to focus on Ford dividend

By Barbara Spector

After Ford Motor Co. released its second-quarter earnings report, Wall Street analysts predicted the family-controlled automaker would have to cut its 15-cents-per-share quarterly dividend. The pundits cited the company’s $11 billion restructuring plan, now in progress, as well as a decline in its income from China.

News reports on the matter speculated that the Ford family — which controls the company through a dual-class stock structure — might be the driving force behind retention of the dividend. A Bloomberg article, for example, noted that the family receives at least $42.5 million annually in dividend payouts.

But a focus on the Ford family’s dividend income fails to take into account some important historical context, says Craig Aronoff, co-founder and principal of The Family Business Consulting Group.

Aronoff points out that during the Great Recession of 2008-10, Ford was the only one of the “Big Three” U.S. automakers that did not take bailout funds from the federal government. Ford used $23 billion in loans it had secured as a cushion in 2006 to stay independent. In order to obtain those loans, Ford put up its blue oval logo as collateral.

In 2012, when Ford was finally able to raise its credit rating and get the logo back, executive chairman Bill Ford said in a conference call, “When we pledged the blue oval it was enormously emotional for me personally and for my family, because we weren’t just pledging an asset, we were pledging our heritage.”

Another factor that helped Ford survive the recession was the suspension of its dividend between 2006 and 2012, Aronoff notes. During those lean years, the Ford family “behaved tremendously responsibly,” he says.

“They consciously, as a family, took a tremendous risk. They consciously, as a family, recognized that that was going to cut off their stream of income from the business for a considerable period of time.”

Stock analysts should have viewed the current dividend situation through this lens, Aronoff says. “Given how responsibly they behaved in the recent past, and the risk that they took, would they risk all that they’ve accomplished to insist on a relatively small, ongoing stream of dividends? I doubt it.”

Indeed, Ford CFO Bob Shanks told The Motley Fool that the company plans to use some of the income generated by its solidly profitable financing unit, Ford Credit, to help support the dividend. Based on that information, The Motley Fool concluded that Ford’s quarterly dividend is sustainable.

Ford has some skeletons in its closet, to be sure; consider founder Henry Ford’s dysfunctional relationship with his son Edsel or his promotion of anti-Semitism. But the Ford family’s recent history is one of careful stewardship and fiscal prudence. They seem to be keeping their eyes on the long road ahead.