<p>Explaining to your financially savvy friends why you own Ford (NYSE: F) shares now is no easy task. The share price went from bad to worse as the coronavirus from China spread globally. Disruptions in the supply chain have made it difficult for car manufacturers to produce vehicles. Plus trying to sell cars and trucks is challenging when so many people are afraid to go public.
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But there is at least one generous dividend, right? Yes, if it … as the facts will show, it’s about as easy to identify reasons to own F-layers as it is to find bathroom cloth nowadays. Still, if you are a half-full investor, you may be justified in taking up some shares and asking for a turnaround.
Coming, going, gone
One of the strongest and most lasting attractions in the Ford stock is its dividend. Last time I checked, Ford’s annual return was more than 13%. It is generous and suggests that a buy-and-hold strategy can justify owning Ford shares in the long run.
However, it is not much consolation for anyone who has owned the stock recently. The stock has taken a cut of more than 50% in a short time and fell from over $ 9 in early February to $ 4.33 on March 22.
One would think that such a sharp drop in prices would improve Ford’s valuation values, but that is not the case. On a subsequent twelve-month basis, Ford’s earnings per share are just under 1 cent and its price-to-earnings ratio is 433.
Did you ever think that there would be a time when Ford’s P / E ratio is higher than for most technical stocks? As cheap as it is, Ford shares can actually not be a bargain.
Oh yeah, about that dividend … it looks like we need to sit down and talk a little bit about it.
Unfortunately, Ford is closing out its dividend. In doing so, the company cites a need “to preserve cash and provide additional flexibility in the current environment.” So for distributors, to quote a well-known Seinfeld character, “No soup for you.”
Factories are closed, payments are delayed, guidance is withdrawn
Let’s rewind for a moment and trace the chain of events at work here. Coronavirus triggered health and safety problems among car workers. As a result, the union United Auto Workers ordered Ford to close its factories in the United States for two weeks. Ford followed the union’s demands (or bowed to pressure, depending on who you ask).
Of course, it is very difficult to make money when your factories do not produce your flagship product. It is only a two-week shutdown so far, but no one knows how long the coronavirus crisis could last. A couple of weeks can be turned into months.
At about the same time, Ford announced a program in which the company will offer customers who buy new vehicles an opportunity to defer their first payment for six months. It is a long time before Ford starts to see the payments, and the company can benefit from a capital inflow now rather than later.
Further deteriorating prospects, Ford has withdrawn its fiscal guidance for 2020. It is not exactly a confidence booster. Still, despite all the above concerns, bold investors can still see the glass as half full and take a chance on the F stock. If the stock approaches the $ 3 level, it will be difficult to resist buying some and holding them until the coronavirus outbreak (hopefully) persists sometime in the future.
Takeaway at F-warehouse
Make no mistake about it. If you buy Ford shares now, there is a good chance that you will be burned in the short term. Traders are likely to penalize the company for shutting down its dividends and withdrawing the 2020 guidelines. But if you are willing to hold your nose and take up some shares, at least you will own a stake in a large company at a small price.
David Moadel has provided compelling content – and crossed individual lines – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) InvestorPlace.com. He also serves as chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Watching the Markets. At the time of writing, he had no position in any of the above-mentioned securities.