Ford Motor Company (F): Is Doubling the Dividend Enough?

Is it still a good dividend stock?

Even with the growth prospects at a minimum, a 2.82% yield is nothing to sneeze at. How fast does the dividend need to grow to justify the current share price? To answer this question I’ll use the dividend discount model. This method values the company as the sum of all future dividend payments discounted back to today. I’ll use a discount rate of 8%, which is roughly the long-term growth rate of the market as a whole. I’ll assume that after ten years growth slows to 3% per year in perpetuity. By plugging in the current share price I arrive at a 10-year dividend growth rate of 9.55%.

I don’t think that Ford will grow its dividend this quickly. The average analyst estimate for earnings growth going forward is 7.45%, meaning that some dividend growth would have to come by raising the payout ratio.

The bottom line

I’m not saying that Ford isn’t a good investment. But it is not a good dividend stock, and is unlikely to be one for quite some time. If you’re a dividend-focused investor I would stay away from Ford. The growth is just not there.

The article Is Doubling the Dividend Enough? originally appeared on Fool.com.

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