Will Ford Maintain or Increase Its Dividend in 2025 Amid Tariffs and Stagnant Cash Flows?

Ford's dividend yield is 5.2%, one of the highest among S&P 500 constituents. The company hasn't increased its regular dividends since 2022, amid the impact of President Trump's tariffs. Ford forecasts free cash flows between $3.5 billion and $4.5 billion for 2025, with a net tariff hit of $2 billion. The guidance is dependent on various factors, including interest rate changes and the macro situation.

Ford Motor Company has maintained a dividend yield of 5.2%, one of the highest among S&P 500 constituents, despite the challenges posed by President Trump’s tariff policies. The company has not increased its regular dividends since 2022, and its dividend payout for the first half of 2025 has been substantial, raising questions about its financial sustainability [1].

Ford's dividend payout for 2025 is expected to be around 75 cents per share, including a supplemental dividend of 15 cents paid in March. This amount is nearly as much as analysts’ average earnings estimate of 78 cents per share, according to S&P Global Market Intelligence [1]. Ford aims to maintain its dividend despite the significant impact of tariffs on its business. The company expects tariffs to cut about $2 billion from its 2025 pretax earnings, up from the $1.5 billion estimated earlier in the year [1].

To justify its payouts, Ford uses a nonstandard metric called "adjusted free cash flow." This metric excludes certain cash outflows, such as restructuring costs and pension contributions, and includes cash inflows from settlements and distributions from its Ford Credit segment. Ford aims for shareholder distributions, including dividends and share buybacks, to be between 40% and 50% of this adjusted free cash flow [1].

Ford's free cash flow guidance for 2025 is between $3.5 billion and $4.5 billion, after accounting for $9 billion in capital expenditures. However, the company's adjusted free cash flow for the first half of 2025 was just $1.3 billion, with dividends paid out amounting to $1.8 billion, significantly more than the adjusted free cash flow [1]. This raises concerns about the sustainability of Ford's dividend policy.

Ford's dividend policy is crucial for supporting its share price and appealing to income-oriented investors. However, maintaining the dividend at current levels while business prospects suffer means less cash available for reinvestment in the business or paying down debt. Ford's dual-class share structure, where Ford family members own Class B shares with 40% of the voting rights but only 2% of the total shares outstanding, also plays a role in its dividend decisions [1].

In conclusion, while Ford's dividend yield remains attractive, investors should be aware of the company's stretched financial position and the potential impact of tariffs and other factors on its financial performance. Ford's ability to maintain its dividend will depend on its ability to generate sufficient adjusted free cash flow.

References:
[1] https://finance.yahoo.com/news/ford-dividend-looks-hard-maintain-093000982.html