Cash-Rich Ford Increases Its Dividend by 25%

From Reuters

Ford Motor Co., rich with cash from its record profits, Thursday raised its first-quarter dividend 25% to 75 cents per share, a move long expected by industry analysts.

The increase from the previous level of 60 cents per share was Ford’s first dividend hike since the second quarter of 1988, when the 60-cent level was fixed.

“Today’s substantial dividend increase reflects Ford’s commitment to maximizing the value of its shareholders’ investment,” Ford Chairman Donald E. Petersen and Vice Chairman Harold A. Poling said in a statement.

Analysts said the auto maker could well afford to raise its payout because of its $10 billion in cash and marketable securities.


But Ford’s treasurer David McCammon said a key criteria in raising the dividend was whether the increase could be sustained.

“We don’t want to be in a position of raising the dividend and then having to cut it in the future,” McCammon said.

The action by Ford now puts the spotlight on industry leader General Motors Corp., which has not raised its dividend since 1984. With the Ford increase, the yield on common shares of both auto makers is the same--5.7%.

“While I don’t think Ford raised its dividend to thumb its nose at GM, this does put pressure on GM to raise its dividend,” said analyst Ronald Glantz of Montgomery Securities in San Francisco.

GM’s dividend is $1.25 per quarter or $5 on an annual basis. Ford’s dividend now translates to $3 a year per share, up from the previous $2.40 a share. Ford’s stock, however, trades in a lower range than GM shares.

McCammon said competition with GM was not a factor, adding that he hopes the dividend increase will push up the price of Ford stock.

Many analysts thought Ford would only increase its dividend by 10 cents a share to $2.80.

Joseph Phillippi of Shearson Lehman Hutton estimated that a $3 a share annual payout will cost the auto maker $285 million over the current dividend.

Some analysts, such as Charles Brady of Oppenheimer & Co., said Ford may raise its dividend again during 1989, possibly to $3.20 annually.

Brady said the auto maker likely did not want to make a single large increase because of concerns about costs and auto sales in the coming year.

Phillippi, however, said he thinks the Ford increase will be the only one this year.

In the first nine months of 1988, Ford earned a record $4.14 billion on sales of $60.86 billion.

Analysts expect the auto maker’s earnings for the full year to approach $5.2 billion, breaking the old company record of $4.6 billion, set in 1987.