Wednesday, November 9, 2022

What Sliding Cash Flow Means for This Well-Known Dividend

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What Sliding Cash Flow Means for This Well-Known Dividend

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Shares of Ford (NYSE: F) are down 38% this year as the market considers the deteriorating fundamentals at the car company.

In October, U.S. sales plummeted 10%.

But the real problem is free cash flow. This year, free cash flow is expected to be half of what it was in 2020. And next year, it'll be half of this year's. In fact, the 2023 figure is projected to be the worst in a decade.

For those keeping score at home, that's bad. Very bad.

Chart: Ford's Free Cash Flow Has Made a Roundtrip
 

The good news is that Ford can pay for its dividend.

This year, Ford is forecast to pay $1.9 billion in dividends, well below the $7.7 billion in free cash flow expected for this year and even the $3.7 billion anticipated for next year.

But Ford slammed the brakes on its dividend in 2020. After paying a dividend every quarter since 2012, management eliminated the dividend for six quarters starting in 2020.

That history of abolishing the dividend means management won't hesitate to do it again if times get tough.

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Combine a potentially trigger-happy management with rapidly depleting free cash flow, and you have a dividend that could very well be facing a cut in the next year or so.

The company's finances and declining cash flow indicate the dividend is not safe at all.

Dividend Safety Rating: D

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Let me know if you have a stock whose dividend safety you'd like me to cover next by typing the ticker in the comments section.

But before you do, please check to see whether I've written about your favorite stock recently. There's a good chance I have.

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Good investing,

Marc

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