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Turned Around Ford (F) Looks To Consolidate Gains

 December 09, 2011 12:05 PM
 


Second largest automaker in the U.S. Ford Motor Co. (F) is returning to the dividend-paying track with the company announcing a quarterly dividend of 5 cents a share. The announcement comes after a 5-year hiatus of dividend payment to its shareholders.  The company seems to be enjoying the fresh seeds sown after being pushed into doldrums between 2005 and 2007.  But the question now lingering in the minds of the investor is whether Ford can consolidate the gains reaped during the last few years to maintain the momentum given the uncertainty in economic conditions globally.

The Dearborn, Michigan-based company has set its goals and priority very clear and they seem to be achieving them one by one. The announcement by Standard & Poor's in October on its credit rating came as a shot in the arm for the company. The rating agency increased its corporate credit rate on Ford to 'BB+' from 'BB-' and removed ratings from CreditWatch. The current outlook is stable. This is a remarkable turnaround from a ‘Junk' status . Ford wanted to get back the investment grade rating from the rating agency before paying dividend.

[Related -Ford Motor Company (F): What To Watch In Q4 Results?]

Success Journey

The journey to the return of dividend is full of events. Ford discontinued paying dividend in September 2006 after the company had fallen into debt-trap and suffered a loss of $12.6 billion.  Ford paid a dividend of 10 cents between 2002 and 2006 first half. The company came back strongly from a precarious position until a couple of years back to post significant success during the last ten quarters, thanks mainly to its restructuring and innovation in dishing out fuel-efficient vehicles to arrest Toyota's inroads into the U.S. market.

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It was major onslaught unleashed by Asian auto giant Toyota to dethrone General Motors from being the largest automaker in the world between 2006 and 2008 and did succeed for a brief period. Both Ford and General Motors found the going tough when Toyota's fuel efficient small and mid sized vehicles ate into the share of the two major auto companies from the U.S. during the period and steadily losing their share.

As part of its repositioning the brand Ford, the company had to get rid of brands such as Mercury, Volvo, Jaguar and Land Rover, shutting down of factories besides launching of newer products such as Ford Fiesta and Ford Explorer SUV. The company also appointed Alan Mulally as its CEO in 2006 allowing him a cushion of more than $20 billion debt to survive losses so as to avoid bankruptcies that General Motors and Chrysler had to undergo. Interestingly, General Motors is yet to pay dividend following its 2009 bankruptcy and restructuring. GM had stopped its dividend payment in July 2008.

Ford board could not recommend dividend unless it pays dividend to preferred stock holders. Ford paid $255 million by way of dividend to preferred stockholders and another $3.8 billion for union retirees trust to avoid legal wrangling. These payments were made in 2010 itself.

The company took concerted efforts to reduce its debt to $12.7 billion at the end of third quarter in the current year from a whopping $33.6 billion at the peak of its distress. Ford rebounded strongly to earn a profit of $2.7 billion in 2009 and the net profit jumped to $6.6 billion in 2010. The company also converted a part of its debt into equity in 2009 thereby allowing it to return to black.

November Sales

Ford reported 13.3 percent growth in U.S. sale for November driven by strong demand from its fuel-efficient vehicles and trucks. The sales report came on top of October's year-over-year sales upside of 6.2 percent. While truck and utility vehicle sales witnessed an upside of 22.8 percent and 29.3 percent respectively for November, car sales slipped 8.8 percent over the previous year period.

The company's U.S. retails sale grew 20 percent and the auto giant estimated its retail market share has averaged 15 percent during the last three months, its strongest share in five years.

iStock Punch

Ford's newer products and fuel-efficient vehicles are delivering the results that are expected despite the uncertain economic conditions. The drop in sales for cars is a concern. That could be due to consumers preferring for better economic conditions over the current uncertainty. The company seems to be sitting pretty to maintain the gains reaped during the last few years.

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