Ford Motor Co. vs. General Motors Co.: The Better Dividend Stock?
Is GM Better Than Ford?
Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are two of the heavyweights in the biggest automobile market of North America. Both Ford stock and GM stock are promising dividend stocks for an investor looking for exposure to this industry. However, with limited funds, investors may only be able to consider adding one of these carmakers to their portfolios.
Let’s find out which stock is the best dividend stock play…
Recall that the consumer discretionary sector was the best performing sector in 2015. As usual, expectations were that U.S. consumers would be spending their disposable income on apparel and footwear through the holiday season. But as it turned out, consumers went for big-ticket items instead.
Surprisingly enough, consumers diverted their spending to the automobile and home improvement industries, which have posted unexpectedly better results over the past year.
In the automobile industry, the “Detroit Three” markedly stood out, beating the German and Asian automakers. Ford sales made it the star with General Motors’ sales closely following at its heels.
At a cursory look, it seems like Ford is the better stock to hold. But hold your horses! Let’s dig deeper into their fundamentals for confirmation. As always, due diligence is key before investing in any stock.
Dividend Yield
Both the stocks offer a stellar dividend yield in excess of four percent. However, Ford stock loses to GM stock by barely 43 basis points. Ford stock yields 4.42%, but GM’s higher dividend yield comes in at 4.85%.
Winner: General Motors
Dividend Safety
Both Ford and General Motors have an inconsistent history of dividends.
General Motors resumed its dividend payout in 2014 after a six-year hiatus. During this period, the company struggled with bankruptcy. Things weren’t as bad for Ford, but likewise, the company was not paying dividends during the years of the Great Recession.
Bear in mind that the consumer discretionary sector is not recession-proof. When the tide turns, consumers cut back on luxury spending, so companies in this sector are the first to suffer when a downturn hits the economy. Overall, however, Ford’s dividend payout has been more consistent than that of General Motors. Ford scores the point here.
Winner: Ford
Valuation
Ford stock currently trades at six times its forward earnings, while GM stock is trading at five times its forward earnings. In fact, other price multiples like price-to-sales and price-to-book are also cheaper for GM stock. Simply put, GM stock is relatively undervalued compared to Ford stock.
Winner: General Motors
Growth
The “Blue Oval” has managed to pull off the best sales volume growth this year amongst the Detroit Three. In February, Ford sales grew a stellar 12.4% from the same month last year. General Motors trailed Ford, Fiat, and even Honda, with an eight percent year-over-year growth.
Overall, General Motors’ market share is also projected to be receding, while Ford is gaining ground in the industry. (Source: “New-Car Sales To Jump 9 Percent In February 2016, According To Kelley Blue Book,” PR Newswire, February 25, 2016.)
Winner: Ford
Debt Load
Ford has nearly three times the debt load on its balance sheet than General Motors. General Motors’ debt-to-equity ratio is 1.6, while Ford has a debt of more than four times its equity. Here, General Motors appears better managed and comes out the winner.
Winner: General Motors
Returns
Both the companies offer the same return on assets of about 2.32%. Here, it’s the return on equity (ROE) that becomes the deciding metric for these stocks. It shows us how much the company returns to shareholders through dividends and buybacks. GM stock offers a higher ROE of 27.5%, versus Ford stock’s 25.2%.
Winner: General Motors
The Bottom Line on GM vs. Ford
Ford is presently delivering better growth with a better dividend history, but the company has a lot of debt to deal with. General Motors is losing share to Ford, but GM is still a market leader and offers better returns on a relatively undervalued stock.
Both Ford and General Motors come neck to neck in the race, but GM stock wins by one point. General Motors lands first place on the podium!
