05
Banking on Dividends
Categories: Value Proposition
Now what?
This is simply a test post using a screen shot from my stock tracking software (Worden’s Telechart). As I have been a wallstreet wannabe for many years, I have taken to everything from reading stock patterns and studying value investing to trying my own hand speculating (not always investing). I would argue that I am certainly not a professional and I am completely biased in my picks so take what I write in future postings regarding stocks with a major grain of salt. But the last 12 months in the automotive business is too rich with vignettes to avoid talking about it.
Before the crash, I would have agreed with virtually everyone else that Ford stock (F) was a risky proposition. Bankruptcy was not out of the question, our sales & share were tanking, and we couldn’t seem to keep our cost cutting ahead of our revenue declines. But things began to hit the floor. The bankruptcies of GM AND Chrysler meant that only Ford would be left standing (American owned OEM). If GM and Chrysler were to come out of BK, they would be forever tarnished (at least for the present generation) and the short term lift in share could be incredible for Ford. Obviously, given the behavior of the share price pictured, the last 6 months have been very good to shareholders. A lot of people have jumped on the bandwagon. But now that the price has recovered to 2006-7 level prices, what can we speculate?
Reminder: I do NOT have any inside financial knowledge at Ford Motor Company. I am only speculating.
Here is something I’ve been arguing around the water cooler:
- Eventually the preferred shareholders (class B shares) are going to want the dividend restored.
- Going back to 1959, the average quarterly dividend was 53cents a share.
- Buying stock while it is low priced (now that the risk of bankruptcy is minimized) will give a huge return once those dividends are restored even if it takes years to get back to average.
- Even with the risk of 20-50% dilution in a debt for equity swap, the investment may yield a substantial long term return with an average dividend.
Sure, it is a wild bet….but so is the stock market. It is fun to speculate if you are young enough to make these kinds of bets.
