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.
Over the past generation, investors have become spoiled by the asset light business that has driven many prominent companies to success. A company like Alphabet’s subsidiary Google has a very asset light business model, despite having over 80,000 employees. If there are 30% fewer Google searches next year, the profits at Google may only go down 35%. There is … Read the rest of this article!