3 Automakers Providing Dividends Despite Market Concerns

David Whiston: 2019 U.S. light vehicle sales were healthy at 17.1 million, but sales have declined for two of the past three years, and we think they will decline again in 2020. Concerns of peak sales for this cycle have been an overhang on our U.S. autos coverage for a long time, which can make stock-price appreciation difficult. Dividends are a way to get paid to wait, and in our U.S. autos coverage we see 4-star rated Ford (F) and GM (GM), and slightly overvalued dealer Penske Automotive Group (PAG), as the best dividend-payers.

Let’s start with the highest dividend yield of the three, Ford, currently paying about 6.5%. Yields this high often come with dividends that are in jeopardy, but we don’t think so in this case. One important differentiator of Ford from most other large corporations is its family ownership. Its dual share class structure means the Ford family always has 40% voting control, but to us it also means the family wants to keep getting paid. Management has guided many times that the dividend can be maintained even if auto sales returned to the lows of 2009, which we think is highly unlikely to happen, partly because there are now about 20 million more licensed drivers in the U.S. than in 2009. As of Sept. 30, Ford had $22.3 billion of automotive cash and investments plus over $13 billion in availability on credit lines, so we see plenty of liquidity to keep servicing the annual dividend of about $2.4 billion. We think management is highly aware of the dividend’s importance to all shareholders, and would only cut or eliminate it in the direst of circumstances that we do not see happening.