Ford Dividend Cut Seen Likely to Save Cash From Virus Crunch

(Bloomberg) -- Ford Motor Co. probably will be forced to cut its dividend to conserve cash through months of pain brought about by the coronavirus, analysts at RBC Capital Markets said.

The viral illness that initially looked like an issue for auto supply chains in China is now a pandemic threatening vehicle demand around the globe, Joseph Spak, who rates Ford shares the equivalent of a hold, wrote Thursday. Industry sales have cratered in China and could fall by as much as half in the U.S. and parts of Europe for several months, he estimated.

In listing the “burning questions” clients are asking, the first on Spak’s list was whether Ford will cut its 15-cent dividend. “We believe they will,” he wrote in his report. “Before Covid-19, we would have put even odds on a 2021 cut. That now looks to be accelerated into this year.”

Ford has repeatedly assured investors that it will maintain the payout during the worst of times. But Spak believes the $2.4 billion annual cost of the dividend will be too much of a burden for a company that’s repeatedly come up short with its earnings and just issued a disappointing profit forecast for the year.

‘Fallen Angel’

Chief Executive Officer Jim Hackett recently shook up management by appointing Jim Farley chief operating officer and gave him a mandate to accelerate an $11 billion restructuring. Credit-ratings companies have raised concerns about the efficacy of those efforts, with Moody’s Investors Service downgrading Ford to junk and S&P Global Ratings cutting the company to the lowest rung of investment grade rating last year.

Credit Suisse listed Ford among the companies they expect the virus to render “fallen angels,” referring to investment-grade credits that are dropped to junk. The automaker is vulnerable to “further credit deterioration” as the virus slows the economy and causes supply chain disruptions, the analysts wrote in a report Friday.

“Before, a dividend cut would have been to ‘save’ the investment-grade rating,” RBC’s Spak wrote. “Now, it’s just prudent (regardless of if the rating is ‘safe’).”

Ford shares pared a gain of as much as 10% to trade up 1.1% as of 10 a.m. Friday in New York. The stock closed Thursday at $5.35, the lowest since July 2009.

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Chester Dawson

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