Ford Motor Co. (F, Financial), one of the largest U.S. producers of cars and trucks, has long-term potential because the company has increased market share and brand loyalty.
Ford operates in a highly cyclical industry with automakers increasing their cost leadership strategies. Last year practically all of the production came from five global and four regional platforms with faster production and lower costs –Â a clear reduction from the 12 it had in 2015 and even more in previous years.
Apart from competition, the company needs to adapt to an evolving demand. Further, Ford is cutting costs to improve economies of scale. In the past, a lot of money was not effective allocated in a worldwide platform scheme.
Models like Fiesta and Focus help the company improve gains because they are fuel-efficient cars that are well received by customers. On the other hand, Lincoln's cars compete in a more premium segment so it will need to renew vehicles in the future.
Ford reinstated its dividend policy five years ago and has an attractive dividend policy as it generates healthy cash flow on a regular basis. Dividend yield is an important aspect of income investing. Ford´s dividend yield is close to a 10-year high, yielding 5.3%. Its cash was allocated to return capital to shareholders via dividends with a history of doubling or upping them.
According to Yahoo! Finance, the estimated one-year target share price is $12.8, so if you buy shares at current market price ($11.35), your return from price appreciation would be 12.7%. In addition, you have to consider any cash flow received by the asset. For holding the stock one year, you'll be paid a dividend of 60 cents at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock –Â and in this case is 5.3%. So the total expected return for investing in Ford is 18%, which is an attractive stock return.
Final comment
Ford´s products are of higher quality, and the Ford and Lincoln brands have good acceptance. Volatility of fuel prices or a downturn in industry sales could damage revenues. Moreover, this stock has a strong reason to be part of a diversified portfolio, its dividend yield.
Richard Pzena is the second major shareholder among the gurus with a holding of 17.2 million shares, valued at $200 million. The leading holder is Barrow, Hanley, Mewhinney & Strauss with 24.3 million shares.
Disclosure: Author holds no position in the stock mentioned.
