Ford Motor (NYSE:F) witnessed a 6% surge in its shares during Wednesday morning trading following the announcement of an increased dividend for the first quarter and a decision to scale back investments in new electric vehicle (EV) capacity, which had been operating at a loss.
On Tuesday, Ford revealed plans to supplement its regular dividend of 15 cents per share with an additional 18 cents per share, aligning itself with competitor General Motors (NYSE:GM) in returning cash to shareholders. Consequently, GM shares also saw a 2% increase.
Analyst David Whiston of Morningstar noted that the dividend payout aims to enhance the firm’s payout ratio and distribute a portion of its substantial automotive cash balance, standing at $28.7 billion, to shareholders. Whiston added that with such ample cash reserves and credit lines totaling over $46 billion in automotive liquidity by year-end, Ford appears well-equipped to weather potential adverse macroeconomic conditions in 2024 without compromising future investments.
Based in Dearborn, Michigan, Ford announced plans to target $2 billion in cost reductions to offset expenses associated with the labor contract deal reached with the United Auto Workers union. Additionally, the company revealed its intention to decrease investments in new EV capacity to align with a decrease in demand, as consumers show a preference for hybrid vehicles and family SUVs due to pricing and charging concerns.
Marin Gjaja, head of the Model E EV business, indicated to analysts that the next generation of Ford EVs will only be launched when profitability can be assured.
Wells Fargo analysts expressed caution, maintaining an underweight rating on Ford, citing what they perceive as optimistic assumptions regarding pricing and cost reductions.
Despite this caution, Ford reported an adjusted profit of 29 cents per share for the fourth quarter ending in December, surpassing analysts’ estimates of 14 cents per share.
BofA Global Research remains optimistic, citing a strong near-term product cadence and management focus, and raised its price objective on Ford stock to $21.
Ford shares trade at approximately 6.81 times forward profit estimates, exceeding rival GM’s multiple of 4.26.
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