Could British Investors Profit From Ford?
LONDON -- Last week, Ford doubled its dividend. For a company that a few years back had been virtually written off, that isn't bad.
But Ford didn't go bankrupt during the recession, and it didn't take a government bailout. Instead, it sold loss-making and non-core operations, abandoned the dividend, and worked hard on improving its balance sheet.
And last March, it resumed paying dividends after a gap of more than five years, declaring a dividend of $0.05, which it last week doubled to $0.10. The last time it paid a quarterly dividend of $0.10 was in June 2006, before the credit crunch and the recession that ensued.
Ford's share price rose 2.7% on the day of the announcement and now stands at close to a 52-week high. And -- get this -- the company is once again hiring.
In short, Ford looks to me like a turnaround stock that's turned the corner.
But Ford, it's fair to say, isn't a share that many British investors will ever have considered buying -- despite the fact that buying the shares of international companies is now easier, and cheaper, than ever.
Indeed, America's stock markets could well be considered a "must buy" for serious long-term investors, making up as they do a whopping 52% of the MSCI World Index. The U.K., by comparison, makes up just 9%.
Yet for all of this, few of us seeking exposure to America's markets get further than buying an American index tracker -- such as HSBC's low-cost HSBC S&P 500 ETF, or Vanguard's Vanguard S&P 500 ETF.
Doing the deal
Look closely, and for most investors, trading through most "big name" brokers, buying American shares is no more complicated than buying British shares.
Granted, the commission is a little higher, and there are foreign exchange costs to take into account, but these aren't excessive. My broker, for instance, charges just 11.95 pounds as a commission -- and don't forget that with foreign shares, there's no stamp duty to pay.
That said, there's a little more form-filling involved. The IRS charges a 30% withholding tax on dividends, for instance, and overseas investors -- that's you -- need to fill in a W-8BEN form once a year to get a reduced tax rate.
The good news? Every broker is familiar with these forms, and filling them in is very straightforward. Putting it another way, compared with when I first bought American shares through an American broker in the 1990s, today's dealing arrangements couldn't be simpler.
So is Ford a buy?
Clearly, there's still work to do on the balance sheet: Debt is still high, and the easy cuts have been made. Europe's meltdown isn't helping, either, with sales in Europe down 27% in December, and losses of $1.5 billion being mooted.
But the contrast to the dark days of 2008 is stark, and with three years of returning profits under its belt, and rising earnings, Ford seems undeniably on the road to recovery.
Year Ending Dec. 31, 2011
Year Ending Dec. 31, 2010
Year Ending Dec. 31, 2009
Year Ending Dec. 31, 2008
Earnings per share
Dividend per share
And as the global recovery continues, so will Ford's: Vehicle manufacture remains a business with high fixed costs, where sales above the breakeven point have a disproportionate effect on profits. For proof, look no further than Jaguar Land Rover, sold by Ford to Tata Motors in 2008 for 1.1 billion pounds -- and which is now throwing off profits of 1.5 billion pounds a year. That's right: Sold for just over 1 billion pounds, it's now making that much in profit -- each year.
Changing hands today at $14.03, Ford's shares are rated on an attractive historic price-to-earnings (P/E) ratio of just over 3 and offer a historic yield of 2.8%. And while investors might not be tempted to buy at a 52-week high, Ford shares could well become an attractive "buy" if events in the weeks ahead throw up short-term weakness in its share price.
Follow the money
One investor who certainly buys on weakness is Warren Buffett, whose Berkshire Hathaway investment vehicle has delivered returns of over 20% per annum since 1965 and turned Buffett himself into the world's third-wealthiest person.
As it happens, Buffett recently took advantage of weak results and a dip in the share price to top up his holding in one particular FTSE 100 share -- an unusual move for an investor who rarely ventures outside the United States. As a result, he now owns more than 5% of this company, which he first began buying back in 2006.
Its name? Simply download this free special report from The Motley Fool -- "The One U.K. Share Warren Buffett Loves" -- to find out. Inside, you'll discover just why Buffett has invested more than 1 billion pounds in this business, and why you could consider taking a stake as well.
With the share price sharply up in Buffett's most recent purchase price, the share is still rated below the P/E of the FTSE 100 as a whole and also offers a market-beating prospective yield of 4.2%. As I say, the report is free, and it can be in your inbox in seconds. Click here to download it.
The article Could British Investors Profit From Ford? originally appeared on Fool.com.Malcolm Wheatley has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Berkshire Hathaway and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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