Ford Motor F-N shares surged 6 per cent in morning trading on Wednesday after the automaker increased its dividend for the first quarter and decided to scale back investments in new capacity for loss-making electric vehicles (EV).
On Tuesday, the automaker disclosed its plans to return an extra 18 cents per share in dividend on top of the regular 15 cents to investors, joining rival General Motors GM-N in returning cash to investors. GM shares were also up 2 per cent.
The dividend payout is aimed at enhancing the firm’s payout ratio and distributing a portion of its substantial automotive cash balance, which stands at $28.7-billion, to shareholders, David Whiston, analyst at Morningstar said in a note.
“With this much cash plus credit lines giving over $46-billion of year-end total automotive liquidity, we think Ford can handle most bad 2024 macroeconomic news without sacrificing investing for the future,” Whiston added.
The Dearborn, Michigan-based company said it was targeting $2-billion in cost reduction, in a bid to offset expenses related to the labour contract deal reached with the United Auto Workers union.
Ford will reduce investments in new EV capacity to align with a decrease in demand, as consumers opt for hybrid vehicles and family SUVs due to price and charging concerns.
The next generation of Ford EVs will be launched “only when they can be profitable,” Marin Gjaja, head of the Model E EV business, told analysts on Tuesday.
“We remain underweight on Ford, as we see pricing and cost reductions assumptions as optimistic,” Wells Fargo analysts wrote in a note.
The car maker also reported an adjusted profit of 29 cents per share for fourth quarter ended December, beating analysts’ estimates of 14 cents.
“There is a long way to go, but with a strong near-term product cadence (Super Duty, Navigator, Expedition) combined with management focus, we expect strong profits and progress,” BofA Global Research said and raised its price objective on the Ford stock to $21.
Shares of Ford trade about 6.81 times forward profit estimates, above rival GM’s 4.26 multiple.