Dividend stocks are a valuable addition to an investor’s portfolio, offering the dual benefits of income and risk mitigation. Studies have consistently shown that dividend stocks outperform non-dividend stocks over time. Ford Motor Company (NYSE: F) stands out as an ultra-cheap dividend stock primed for significant upside potential.
Navigating Rough Terrain
Ford is currently facing a formidable challenge as it grapples with disappointing financial performance over the past year. The company has undertaken a massive initiative to slash warranty costs, streamline vehicle design and complexity, and enhance scale. A major aspect of its efforts involves a comprehensive restructuring primarily targeted at reshaping its European operations, hinting at a potential turnaround in the making.
Despite its recent struggles, Ford is making strategic moves that bode well for investors. It has shifted focus from unprofitable markets such as Brazil and India to more lucrative opportunities, including its commercial business and in-demand trucks, SUVs, and off-road vehicles like the Bronco.
Furthermore, the automotive icon is aggressively ramping up its Model e business unit, with a keen eye on electric vehicles. Although this narrative demands patience from investors, much of the scaling is anticipated to stem from the upcoming BlueOval City Battery Electric Vehicle plant in Tennessee. Ford has set an ambitious target to turn a profit on its Model e unit by the end of 2026, which could significantly bolster a company grappling with projected EV losses amounting to a staggering $4.5 billion in 2023.
Image source: Ford Motor Company presentation.
Meanwhile, Ford is leveraging its manufacturing agility to shift gears judiciously. A recent instance is Ford’s decision to reduce two-thirds of jobs at the Michigan plant producing the F-150 Lightning due to softening EV demand. Some of the affected workers will be relocated to a nearby facility where Ford is adding a third crew to boost production of the more profitable Bronco and Ranger.
Scouring for Bargains
Amidst Ford’s ambitious turnaround efforts and steadfast pursuit of its EV strategy, investors have been offloading the stock en masse. This exodus has created an opportunity for astute investors to acquire shares of this iconic Detroit company at an incredibly low price-to-earnings ratio of seven. Furthermore, with a current dividend yield of 5.2%, income-seeking investors find the proposition particularly alluring.
To underscore the impact of reinvested dividends, consider the contrast between Ford’s price return alone and its total return when dividends are factored in.
Undeniably, Ford has faced significant headwinds within its industry, and the company faces an uphill battle to revamp its manufacturing processes, streamline design complexity, curtail warranty costs, and gauge the optimal pace for its EV program.
Nevertheless, Ford’s stock is an ultra-cheap dividend investment currently offering a 5% yield, presenting an enticing opportunity for investors as they wait for the company’s turnaround efforts to yield results.
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The author has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.