After pumping the brakes on its dividend in 2020 and 2021, Ford has accelerated its payout over the past two years.
After slashing its annual dividend from $0.60 per share in 2019 to $0.15 per share in 2020 and then again to $0.10% in 2021, Ford Motor Company (F 0.66%) has hit the gas pedal in the past couple of years, hiking the payout higher. While the stock offers an enticing forward-yielding dividend of 4.8%, income investors are likely a little cautious about driving Ford stock into their portfolios considering the recent inconsistency in the payout.
It's certainly a valid point to wonder if the company is jeopardizing its financial security to placate shareholders, so let's take a closer look at how much Ford plans on paying out in dividends in 2024 to better assess the company's financial health.
Strong free cash flow is helping fuel the higher dividend
With approximately 4 billion shares outstanding, and assuming it returns a dividend of $0.78 per share in 2024 -- based on the special cash dividend of $0.18 per share it paid in Q1 as well as four quarterly payments of $0.15 per share -- Ford will pay out about $3.12 billion in dividends this year. For context, Ford paid out $5 billion in dividends in 2023 and $2 billion in 2022.
An important way to gauge Ford's 2024 distributions is through the lens of its cash flow. Management stated on its first-quarter 2024 conference call that it projects 2024 adjusted free cash flow of $6.5 billion to $7.5 billion, and is targeting consistently returning 40% to 50% of adjusted free cash flow to investors in the form of dividends.
Is now the time to go for a ride with Ford?
Taking a judicious approach to its dividend, Ford seems uninterested in sacrificing its financial well-being to lure investors in with a high dividend, tying it to free cash flow. Should this strategy change, it will warrant further investigation, but for now, income investors should certainly keep Ford on their radars as a potential route to generating stronger passive income.
Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
