Barron’s recently pointed out that the striking United Auto Workers (UAW) may press Ford to eliminate its dividend. The article in which it raised the question was titled “UAW’s Shawn Fain Has a Dangerous Opinion on Dividends.”
Why the Ford Dividend Is Important
The issue of Ford’s dividend, financially, is symbolic. Based on one calculation, it is less than $50 million a year. The issue of symbolism also holds for the pay packages of Executive Chair Bill Ford and CEO Jim Farley. Each made about $20 million last year. However, they have become part of the leverage the UAW has created to get its members to stay off the job. Ford makes billions of dollars, only to give pieces to investors and management, the union argues. Much of that money should go to labor, the UAW argues. (These are the first eight vehicles that stopped production when the UAW called a strike.)
The UAW dividend is a red herring. Investors in many public companies expect this yield, and Ford has had it for years. Ford’s shares will drop from already low levels if it is eliminated. The dividend drives a yield of 5.2%. The stock is down 16% in the past three months. The reasons to hold the stock are already disappearing.
Ford’s share price may be its only chance to raise more money. Granted, this would cause dilution. However, Ford may try to borrow money in the current environment. In that case, it will be hurt by what may be deeply damaged financials and a market in which interest rates are at a two-decade high, particularly for a corporation with numbers that are considered risky.
Ford will release earnings this week. If it falls short of forecasts, the UAW loses some of its argument that Ford is a money machine. If Ford predicts the balance of the year will be highly profitable, the UAW’s case that the unions should share in this is strengthened.
Weak financials and forecasts may take another victim. Ford may be unable to afford its dividend.
Originally published at 24/7 Wall St.
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