Ford Steps on the Dividend Gas Pedal

By Shirley A. Lazo

Dividends are in drive at Ford (F).

On Thursday, citing a solid balance sheet, the company doubled its quarterly payout on its common and Class B stock, to a dime a share. That's worth an additional $750 million or so annually to investors. Yield: about 3%.

The stock, which Standard & Poor's rates Buy, set a 52-week high of $14.07 on the New York Stock Exchange following the news. Ford posted its best December sales since 2006. In 2012's first three quarters, the company bolstered its liquidity position by $2 billion. It has generated 10 consecutive quarters of positive automotive operating-related cash flow.

The giant auto maker, which avoided a federally engineered bankruptcy and bailout, resumed dividends in December 2011 at a nickel a share, the rate in effect when it halted payouts in September 2006 (after halving them two months earlier).

The year 2012 was a grand one for dividends. Actual cash payments by U.S.-listed common stocks surged 18% from the 2011 total, and the forward indicated dividend rate reached an all-time high, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The fourth quarter was unusual, to say the least, with the massive late-year rush to pay special dividends and accelerate some 2013 regular distributions to help investors avoid possible higher taxes. On Dec. 31, the U.S. was able to dodge the fiscal cliff, and the tax rate on dividends and capital gains stayed at 15% for most investors.

Dividend enhancements (boosts, extras, and resumptions) in October-December skyrocketed 95%, to 1,266 from 649 in 2011. Bonus payouts alone totaled 765, more than triple the 249 of 2011's final quarter. And December's 483 special dividends were the most for any month since the 493 in December 1955.

Payout reductions (cuts and omissions), however, which trended higher in each of the year's last five months, numbered 154 in October-December, versus just 27 a year earlier. Mr. Silverblatt attributes the uptick largely to smaller issues taking negative actions. Be that as it may, the dollar value increased due to spinoff adjustments. Mr. Silverblatt cites Abbott Laboratories (ABT) as the largest and best example. Abbott spun off AbbVie (ABBV) and then lowered its own disbursement. S&P treats Abbott's action as a cut, even though it was due to a stock distribution, and even though AbbVie pays a dividend. When all was said and done, net payout enrichments (increases less decreases) climbed by $8.4 billion in the fourth quarter.

For all of 2012, the number of companies making upbeat dividend moves among the approximately 10,000 U.S.-traded issues totaled 2,887, compared with 1,953 in 2011. Negative dividend events came to 275 against 101. Overall, companies paid out $53.4 billion more in 2012 dividends.

"The 2.8% overall equity yield remains relatively high, even at the higher dividend-tax rate, when compared with competing income producers, such as corporate bonds, Treasuries, or bank CDs," says Mr. Silverblatt. "Given the range of yields with equities, from lower-yielding growth issues to higher-yielding income producers, this leaves investors with one of the few remaining areas of choice with measurable degrees of stability."

Additionally, Mr. Silverblatt calculated that from the start of the Bush-era qualified-dividend tax cuts in 2003 through their year-end 2012 expiration, investors saved $358 billion.

Looking ahead, Mr. Silverblatt sees many positive signs for dividends across all sectors, including good earnings coverage of payouts and higher cash balances, which could result in a record dividend payment for 2013. "Investors are seeking income, and companies are increasing their aggregate payout," he states. However, despite record distributions, "these amounts are still significantly below historical payout rates. It's not a matter of companies being cheap. It's a matter of them being nervous about the economy and their resources, similar to most of us."

Write to Shirley Lazo at [e-mail]

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