Ford brings back dividend after 5-year gap

DETROIT Thu Dec 8, 2011 4:41pm EST

A Ford truck sits for sale under an American flag at a dealership lot in Encinitas, California July 25, 2011. Ford Motor Co's quarterly profit beat Wall Street expectations helped by higher prices and improved sales in North America.  Picture taken July 25, 2011.    REUTERS/Mike Blake

A Ford truck sits for sale under an American flag at a dealership lot in Encinitas, California July 25, 2011. Ford Motor Co's quarterly profit beat Wall Street expectations helped by higher prices and improved sales in North America. Picture taken July 25, 2011.

Credit: Reuters/Mike Blake

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DETROIT (Reuters) - Ford Motor Co (F.N) restored its dividend for the first time in five years on Thursday, with a quarterly payout of 5 cents per share that the No. 2 U.S. automaker said it could maintain during any future downturn.

The dividend, payable to common and Class B shareholders in March, will cost Ford about $190 million in the first quarter.

If paid out over the course of the year, Ford will pay about $760 million in dividends. Ford has slightly more than 3.8 billion shares outstanding.

The company last paid a quarterly dividend, also 5 cents a share, in September 2006 when Ford was in crisis mode. That same month, Ford Chairman Bill Ford brought in Alan Mulally as chief executive to lead a turnaround credited with staving off a bankruptcy.

"Compared to the past, we've substantially restructured the company," Chief Financial Officer Lewis Booth said during a conference call. "Our breakeven is lower than it was and we would expect this to be a sustainable dividend."

Ford's decision to restore the dividend comes as it faces a slowdown in the European auto market that has pinched profit margins. In the third quarter, Ford lost $306 million in Europe, where GM is also struggling.

Still, Ford believes the company is strong enough to restore the dividend.

"We've done some stress testing, clearly looking at different scenarios in Europe as part of that stress testing, and we feel comfortable on a worldwide basis that we can restart the dividend," Booth told reporters.

Ford's move may raise questions about what U.S. rival General Motors Co (GM.N) will do with its gigantic cash pile, Citigroup analyst Itay Michaeli said in a research note.

GM, which took a federal bailout and returned to the public markets in November 2010, ended the third quarter with $33 billion in cash and cash equivalents.

"Although we do not see an immediate read-through, we have to believe that Ford's dividend may put more pressure on GM to deploy cash at some point next year," Michaeli said.

NO PRESSURE FROM FORD FAMILY

Mulally, with the backing of the Ford family, has led a restructuring of Ford that included borrowing more than $23 billion from banks and implementing "One Ford" plan, to simplify and unify product development and supplies.

Ford, the only U.S. automaker not to take a federal bailout in 2009, is now seen as the strongest of the three Detroit automakers.

"The industry's vast restructuring over the years has yielded a 'new auto' platform where companies can feel confident paying dividends despite macro uncertainties," Michaeli wrote.

Ford previously said the dividend would come only after achieving an investment grade credit rating. But earlier this year, executives indicated a dividend could be paid sooner.

In October, Ford posted its tenth straight quarterly profit and signed a deal with the United Auto Workers that will increase labor costs by less than 1 percent a year.

The contract was an important factor that helped convince Ford it could restore the dividend.

Booth said the decision was driven by management and was not influenced by shareholders including the Ford family, who owns 70.8 million class B shares.

The family is poised to receive a first-quarter payout of $3.54 million from the Class B shares.

Moody's and Standard & Poor's Ratings Services said the dividend would not affect their rating or outlook on Ford.

"Still, we note that prospects are growing for weaker industry sales in Europe and slower growth in other large markets such as Brazil, and that this could dampen cash flow prospects for operations outside North America," Standard & Poor's said.

Ford shares closed 3 percent lower at $10.75 on Thursday. The S&P 500 Index fell 2.1 percent on the day.

(Reporting by Deepa Seetharaman, editing by Matthew Lewis)

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Comments (1)
This is premature. 2012 will be a down year. The fundamentals are just not there for a recovery any time soon.

Dec 08, 2011 8:03pm EST  --  Report as abuse
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