Ford Motor Joins Dividend Revival After Pandemic Pause

(Bloomberg) -- Ford is joining Ralph Lauren Corp., Gap Inc. and Universal Health Services Inc. among companies that have reinstated dividends that were paused in the pandemic, a relief for institutional investors and dynasties like the Ford family. 

More than a year into the pandemic, half of the 36 members of the S&P 500 Index that suspended payouts last year have restored them as they become more optimistic about their recovery and business outlook, according to data compiled by Bloomberg. 

Ford will start distributing 10 cents a share as of Dec. 1 after suspending its dividend at the onset of the pandemic in March 2020. The plan, shared after the close on Oct. 27, sent Ford’s stock soaring 8.7% on Thursday to $16.86, its highest close since September 2014.

“The dividend reflects our confidence in the improving run rate of the business and our ability to fund all of our calls on capital, including the growing investment in electrification and the trajectory of our Ford+ plan,” Chief Financial Officer John Lawler said on an earnings call earlier this week. It was also “sized to ensure we maintain appropriate optionality,” he added.

Resuming the payout is especially good news for one of America’s most important industrial clans. Members of the founding Ford family derive tens of millions of dollars in income from the dividend. The progeny of Henry Ford own a special class of stock that give them 40% voting control of the company.

Family Wealth

“Most of our net worth is tied up in the company,” Executive Chair Bill Ford, the great-grandson of founder Henry Ford, said of his family in 2017. While several members of the family work for the automaker and sit on its board -- including Bill Ford, his daughter Alexandra Ford English and her cousin Henry Ford III -- scores of members of the industrial dynasty now in its sixth generation depend on the dividend for significant income.

Ford restored the dividend earlier than analysts expected and at a higher rate, though it’s still lower than the 15-cents-a-share distribution the company was paying out before the pandemic. Ford’s 10-cent quarterly dividend will cost the company $400 million a quarter, or $1.6 billion a year, according to Lawler. 

“Reinstating the dividend so soon in the plan and in the midst of unprecedented market/supply risk may raise an eyebrow,” Morgan Stanley analysts led by Adam Jonas wrote in a research note on Thursday. Ford is still “in the early innings” of its plan to invest $30 billion in electric vehicles by 2025, they said. And while traditional auto investors value dividends, there is an “opportunity for Ford to attract non-traditional investors,” they wrote. 

Dividend Debate

Tesla Inc. is among the Silicon Valley stars that are dividend-free and yet still manage to cultivate a strong following among investors. “When a company offers dividends, it’s kind of cresting the hill,” Elon Musk, its chief executive officer, said this month at the company’s annual meeting. “They’ve run out of things to invest in internally. We’ve not run out of things to invest in by a long shot.”

General Motors Co., which suspended its dividend in April 2020, has yet to reinstate the payout, despite CEO Mary Barra saying last November that the company expects to resume dividends “around mid-2021.” When asked again about the dividend plan in an earnings call in February, Barra said she would defer comments on it until “later in the year.”

Among the S&P 500 members that paused dividends last year, prominent names in a variety of industries have yet to restore them. Seven companies in the hotels, restaurants and leisure sector, including Wynn Resorts Ltd. and Royal Caribbean Cruises Ltd., have yet to bring them back, according to data compiled by Bloomberg. A slew of air carriers, such as Southwest Airlines Co. and Delta Air Lines Inc., also haven’t resumed dividends as they are still restricted from doing so for accepting government funding under the CARES Act last year. 

Ford’s management has a history of defending its dividends, which it has said are sacrosanct. Prior to the pandemic, the automaker last suspended payouts in 2006 before reinstating them five years later. 

Bill Ford has even joked about the pressure he gets from the family to keep dividends flowing. During the company’s annual meeting in 2018, he read off an unidentified shareholder’s question -- “Why is the company so stingy with paying dividends?” -- then quipped: “Was that sent in by a member of the Ford family?”

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