I have been bearish on Ford (NYSE:F) stock for quite a number of years now especially when you consider where shares have declined from recently. Ford didn’t go bankrupt like General Motors (NYSE:GM) but the stock dropped to $1 a share back in the ‘great recession of 2008 & 2009. Even though management and bullish analysts will say that Ford’s production setup nowadays is far more streamlined now than before, this industry still requires the spending of an awful lot of money on factories and raw materials which means the ongoing upfront investment is still very large compared to most of the other sectors.. In saying this, Ford now states that it can basically turn off the tap with respect to its manufacturing which frees up a lot of cash flow. Dividend investors from the cash flow stance will favor the more streamlined Ford but is it enough ?
In the auto sector, all of the companies rarely have strong competitive advantages which basically protect against downside risk. Advantages such as economies of scale, brand strength and pricing power are intangible assets that can keep a company’s margins strong in this sector over the long term. However I just don’t equate any of those afore-mentioned competitive advantages with Ford, which is why I’m always conscious of downside risk. In saying this, that’s basically speaking with my capital gains cap on so to speak as opposed to a dividend income generating stock. In fact from an income perspective, the stock definitely can’t be faulted over the last few years. Why? Well management has paid a special dividend annually plus the yield is presently well over 5% and although the stock is trading south of $12 a share at present, it has remained relatively range-bound. From an income perspective, although the stock has slowly grinded lower over the past few years, it still hasn’t pierced through $10 a share which is encouraging.
So definitely from a dividend point of view, the stock can’t be faulted. Now if we take this one step further a lot of my readers will know that I like to trade options to boost dividend yields. To boost income in a stock like Ford (even though it’s not most volatile) can be done by consistently selling option premium against the long stock position every month or every 45 days. By careful management the five…
