Overall, 2020 was a tough year for dividend investors because many companies suspended their dividends. Ford and General Motors suspended their dividends in 2020 as the COVID-19 pandemic amplified their woes. However, the economic situation has improved over the last few months. The economy looks like it will get stronger in 2021. Many companies that suspended their dividends in 2020 restored them towards the end of the year. When will Ford restore its dividend?
While Ford is among the oldest automakers globally, the stock has underperformed for a decade. Its market capitalization is less than 5 percent of Tesla, which sells fewer cars than Ford. While Ford investors have seen an erosion in the capital since the stock has been trading negative over the last decade, the dividend cut in 2020 was a double whammy.
Ford suspended its dividend in 2020
Ford suspended its dividend in March 2020 amid uncertainty about the COVID-19 pandemic. While suspending the dividend, Ford said that it would prioritize financial flexibility and continue to invest in new products and its growth initiatives. The company also announced that it would draw $15.4 billion from two credit lines to shore up its balance sheet.
Ford's dividend history
The most recent dividend that Ford paid was for the first quarter of 2020. The dividend had a record date of Jan. 30 and was paid out on Mar. 2. The dividend was set at 15 cents per share. The company set the dividend at 15 cents per share in 2016. Looking at Ford’s current stock price, its forward dividend yield would be almost 7 percent if it restores the dividend at 15 cents per share.
Many of the stocks under $10 have a dividend yield of over 10 percent, which could be attractive for dividend investors. Unlike Ford, these companies didn't suspend their dividends in 2020.
*FORD SUSPENDS DIVIDEND, WITHDRAWS GUIDANCE - Bloomberg— Lawrence McDonald (@Convertbond) March 19, 2020
From 13% yld to zero, just like that...
Ford dividend suspension history
Ford had a long history of dividend suspension before the current round. The company suspended its dividend in 2006 before restoring it in 2012. Back then, Ford reinstated its dividend at 5 cents per share. General Motors also suspended its dividend in 2008 and then restored it in 2014.
Ford's timeline for restoring its dividend
During Ford’s earnings calls for the third quarter of 2020, analyst Joe Spark of RBC Capital Markets questioned the company on the timeline of dividend reinstatement. He also asked the company about the “parameters” that it would take into account before reinstating the dividend.
Usually, when companies suspend dividends, they specify financial parameters that they would like to achieve before restoring dividends. These may relate to the leverage ratios like achieving a milestone on the net debt-to-EBITDA ratio or related some other financial metric.
Ford’s management was reclusive about the dividend reinstatement during the third-quarter earnings call. Ford CFO John Lawler said, “I don't think this is the time to have that discussion. I think we need to have that framed up in our total capital strategy and calls on capital and where we're headed as a business, and I think next spring would be the time to do that.”
Ford will likely restore its dividend in 2021
There's a high likelihood that Ford and General Motors will restore their dividends in 2021. The automotive industry looks well-placed heading into 2021 amid low inventories that support prices. While Ford and General Motors are investing in new models, especially all-electric models, they would look at dividend reinstatements favorably amid the improving economic outlook.