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Morningstar Minute: A Dividend Payer on the Road to Growth

David Whiston, CFA, CPA, CFE

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

David Whiston: At Morningstar, we talk a lot about economic moats, but I think there's still a lot of value in no-moat companies, in particular a name we like right now is Ford Motor Company, ticker F. It's got a dividend yield of over 3% and upside north of 60% in my opinion. There's a really interesting top-down and bottom-up story.

On the top-down side, they make nearly all their money in the United States, and that market is going to continue to grow, albeit at a slower rate than what we've seen in the past. But I'm looking for roughly 18 million units at the end of our five-year forecast period, up from about 15.9 million-16.2 million this year. And we bottomed out at 10.4 million back in 2009.

There's also a very attractive bottom-up story with Ford. It's going to allow them to get more economies of scale by reducing the number of platforms they have to build their vehicles. They're forecasting to have 99% of their volume on nine core platforms by 2016. That's a big improvement from 27 platforms in 2007 and about 15 platforms this year.

The market didn't like what Ford said right before Christmastime with North American margins coming down in 2014 versus '13, and global automotive margins also being at risk for the long term. But if they do miss on the global side, they won't miss by a lot, and that's not a huge hit to our evaluation. In the auto industry, you've to spend money to make money. They're launching a lot more vehicles in North America this year compared with last year, and it just is going to take time to recoup those large costs. When they do, I think there's potential for a positive earnings surprise next year.

In the meantime, you're getting paid to wait with a dividend yield north of 3%. You've got automotive liquidity pretty strong here, north of $36 billion, and automotive net cash at year-end 2013 was over $9 billion. That's a really attractive story if you're willing to put up with a little volatility and some headline risk from things like Europe and Venezuela.