ford finance essay

8/3/2019 Ford Finance Essay

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Fords Dividend Policy: 1994-2009

Fords Current Payout Policy: Ford currently doesnt pay any dividend to itsshareholders and has not paid any dividend to shareholders since July 2006. This is

mainly due to falling sales the company has been experiencing in recent years,especially in the current economic climate with sales of new cars down all over theworld. The company also no longer pays dividends as the cash they save from notpaying dividends can be used to invest in the company and in other projects.

Changes in Their Payout Policy in Recent Years: In general, firms wish to keeptheir level of dividend payout steady over time and hope to gradually increase thelevel of dividend over time. Firms do not wish to increase their dividend by a largeamount rapidly because they will have to pay at least that level of dividend in thefuture, unless they want to cut dividends. If a firm increases their dividend by a largeamount and then profits dont increase as much as they have hoped in the next period,the firm may have to cut dividends. Firms always try to avoid cutting dividendsbecause it sends a bad signal to shareholders and to the market. It suggests that thefirm is worried about future cash flows, and this slashes investors confidence in thefirm. This is certainly the case with Ford. From 1994 to 2001, Fords dividend payoutincreased slowly. For example their dividend payout in January 1994 was 11.44c. InJanuary 1996, this rose to 20.02c and by January 1999, their dividend payout was

26.32c. This sent a positive signal to investors and Fords share price increasedgradually over the years from 12.94c in 1994 to 26.31c in January 2001.

However, on October 31st 2001, Ford announced a dividend cut from 30c to 15c.

The New York Times stated that the existing level of 30c could not be sustained and

suggested the cut was because of losses in the previous quarters and worries about

potential losses in the future: At the previous 30 cents, it was on track to cost Ford

about $2.2 billion this year. Industry analysts had said the dividend cut at Ford was

prudent and fully expected by the investor community. It follows the company's recent

warning that it will post its second consecutive quarterly loss since the early 1990's

when it releases its third-quarter financial results next week.1Investors, as expected,

reacted very negatively to Fords announcement. On August 3rd

2001, less than 3months before the dividend cut, their share price was $24.95. There was a leakage of

the dividend cut before it happened as the share price fell in September, but it fell

dramatically after the cut. By November 9 th, the share price had fallen to $16.46. By

the following August, it had fallen to $12.45, less than half the value of Ford stock a

year before. This proves that the market reacted very negatively to Ford announcing

its dividend cut and confidence in ford collapsed as doubts about future cash flows

raged.

On January 28th 2002, Ford cut its dividend again, this time from 15c to 10c.Again, the market reacted negatively to the cut. Five days before the cut, the share

price was $16.66. The share price didnt fall dramatically after the announcement but


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References:

1:http://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorpor

ations

2:http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63

3:http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63

4:http://www.usatoday.com/money/autos/2006-07-13-ford-usat_x.htm

5:http://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.html
http://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://www.usatoday.com/money/autos/2006-07-13-ford-usat_x.htmhttp://www.usatoday.com/money/autos/2006-07-13-ford-usat_x.htmhttp://www.usatoday.com/money/autos/2006-07-13-ford-usat_x.htmhttp://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.htmlhttp://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.htmlhttp://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.htmlhttp://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.htmlhttp://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.htmlhttp://www.nytimes.com/1994/05/13/business/company-news-ford-stockholders-clear-way-for-2-for-1-split.htmlhttp://www.usatoday.com/money/autos/2006-07-13-ford-usat_x.htmhttp://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://query.nytimes.com/gst/fullpage.html?res=9A07E7D81E30F937A25754C0A9609C8B63http://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporationshttp://www.nytimes.com/2001/10/11/business/dividend-at-ford-is-being-cut-in-half.html?n=Top%2FReference%2FTimes%20Topics%2FSubjects%2FC%2FCorporations

ford finance essay

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