Automakers faced a challenging 2023, with the advent of “data centers on wheels,” electric vehicle (EV) competition from Tesla, and financial pressures. While Ford managed a modest 16% return last year, its future performance is now uncertain.
Seeking an Alternative to Ford
Before diving into a potential investment, investors must compare dividend yields with bond returns, especially now that U.S. Federal Reserve interest rates have risen sharply over the past few years.
The Vanguard Total Bond Market ETF on the NASDAQ now yields over 4.3% annually, which is only slightly less than Ford’s 4.9% dividend yield. For those willing to tolerate increased volatility, the iShares iBoxx $ High Yield Corporate Bond ETF on the NYSEMKT is yielding a more substantial 7.3%.
Investors are now faced with a critical decision: whether to bet on Ford’s dividend as the company navigates a challenging transition to software-defined vehicles, or consider bonds for a potentially lower-risk, similar, or superior return; much as they have over the last decade.
Assessing Risks in High-Yield Investments
Before committing funds to Ford stock or a bond exchange-traded fund (ETF), it’s worth heeding Warren Buffett’s preference for high-quality stocks. Stock ownership, while offering superior growth potential, comes with higher volatility. Despite Ford’s historical struggles and an uncertain future, long-term investors should carefully weigh the alternatives.
If considering Ford stock, investors should note that the Motley Fool Stock Advisor recently identified 10 alternative stocks that it believes could outperform Ford. The analysis revealed that these stocks could yield significant returns in the coming years.
*Stock Advisor returns as of December 18, 2023