Ford Stock’s Dividend Isn’t Safe For the Long Term

Financial writers that cover Ford stock, the iconic Detroit automaker, have recently taken to declaring that the Ford dividend is safe for the long term. The analysis seems to be something like this: “Ford is earning around $1.65 per share in profits, and only pays out $0.60 per share as a dividend, which is only a third or so of current profits, so the dividend is probably sustainable for the long haul.”

This type of thinking fundamentally ignores the high fixed cost business model and the general history that Ford possesses.

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General Mills Stock Provides Great Retiree Dividends

In 2016, General Mills stock traded at a price of $72 per share despite earning only $2.92 per share in net profits. That was a P/E ratio of 24. That was well above the blended P/E ratio of 17.8 that had characterized the past three decades of General Mill’s valuation from 1985 through 2015. This elevated P/E ratio was especially ominous for a company that was only growing profits by 4-6%.

If you are going to ignore your better judgment concerning P/E ratios, you should run towards Amazon, Alphabet f/k/a Google, Visa, and Mastercard stock. At least with those companies, the double-digit growth has a fair chance of bailing you out because the subsequent decline in the P/E ratio can be offset a fair amount by the higher profit base.

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