Ford Dividend - More companies to follow?

Ford announced earnings again this week and made it 10 straight quarters of profit, which is pretty impressive considering the trials and tribulations the auto industry has experienced over the past 3 years.  They have paid down more debt and are sitting in a good cash flow position where the discussion of a dividend is starting to enter the arena.  The last time Ford paid a dividend was back in 2006 but it had to stop when the economy took a turn for the worse and a lot of changes had to happen in order to save this American icon. 

Also pay attention to the fact that Ford paid down $1.2B in debt this past quarter.  Remember, as you do with your personal money, if you have money sitting around, the best thing to do is pay down debt if you don't have other forms of investments that will outperform the interest you are paying on your debt.  This is what Ford is doing.  They are operating like any household should and would.  Pay down debt that you don't need to be paying interest on if you are sitting on cash.  It makes their company balance sheet MUCH healthier and it saves them on interest charges that they don't need to be paying since they have money earning practically nothing in your bank account.

So what does a Ford dividend mean for the rest of the market?  Well...right now, the S&P has a dividend yield of roughly 2% which, historically, is quite low.  During the 1970s, the dividend yield was well into the 4-5% range which helped make up for a lack of capital appreciation in stock values.  After the 1982 bull market started, company values jumped up so quickly that dividend yields came down (yield = dividend / stock price). 

As Michael Moskal, my partner and Director of Investments at MGO, as more and more companies sit on cash, which is what we are experiencing today, they are going to have to find ways to give value to their investors.  Value isn't coming from capital growth as we have seen by the last 3 years stock market value fluctuations. 

It doesn't matter, right now, how big or small the dividend is...what's important is that it is starting to happen and it will be continuing as the years pass.

Personally, I am a big fan of dividends.  It provides some sort of return and cash flow in a stock account that may or not be able to gain value in growth.  It makes you feel warm and fuzzy knowing that you are making money.   I currently have a mix of 50% equities, 25% fixed income, and 25% cash yielding a total of 4.2% dividend.  Not bad if you ask me! I get nice checks each month that I can use to either buy more stocks or buy more real estate, as I am invested in both quite heavily.