Is Ford a Yield Trap?

An easy way to pick the best dividend growth stocks [View in browser]( BROUGHT TO YOU BY: Proprietary Data Insights Top Auto Manufacturer Stock Searches This Month Rank Name Searches #1 Tesla 1,219,480 #2 Nio 273,118 #3 Ford 187,773 #4 General Motors 45,474 #5 Toyota 14,492 #ad [I trade only ONE stock & I NEVER worry about…]( Over the last week, The Juice has detailed what young investors are doing with [stocks]( and [crypto](. We found it refreshing that, in addition to the big tech (e.g., Tesla (TSLA) and Amazon (AMZN)) and meme stocks you might expect (e.g., AMC Entertainment (AMC) and Gamestop (GME)), the under-40 crowd keeps an impressively diversified portfolio, chock-full of blue chips. For example, of the top 40 stocks Gen Z and millennials hold, five are [dividend aristocrats](, meaning they’ve increased their dividend payments every year for at least 25 years. We’re talking relatively unsexy companies such as Coca-Cola (KO), Realty Income (O), ExxonMobil (XOM), Johnson & Johnson (JNJ), and Walmart (WMT). But the dividend payers in the top 40 for investors under 40 go beyond aristocrats. They include Disney (DIS), AT&T (T), and Ford (F). Yes. Stodgy old Ford. Among automakers, it ranks behind only Tesla and Nio (NIO) in both our proprietary Trackstar database that tracks investor interest and the most popular stocks Gen Z holds. Just so happens Ford is the perfect example to teach a critical investing lesson, particularly if you’re new to dividend stocks… Brought to you by [Jeff Clark Trader]( [Millionaire Trader Drops Bombshell. “The Only Trade You Will Ever Need”]( Silicon Valley trading millionaire says… “FORGET 99% of the stock market… Trade ONE stock… ONCE per month – over and over again!” He’s recommended REAL gains of 100%, 228%, and 373% in just 8 days – in all kinds of market conditions. Leveraging a trading secret he’s used for years… helping over 171,000 regular people… It’s called the “One Stock Retirement” – a trading breakthrough to help anyone collect triple-digit profits regardless of trading experience, location, starting capital, or market condition. [Click here. It’s all in this exclusive interview…]( Dividend Growth Investing Is Ford a Yield Trap? Key Takeaways: - Investors tend to fall into two traps with dividend stocks. - If the stock price is low and the dividend yield is high, proceed with caution. - You can use a simple filter to see if a low-priced, high-dividend stock is a ripoff or potential bargain waiting to take off. We’ve been there before. As new investors and even with many years of investing experience under our belts. Two things suck us in: - A low-priced stock. Say under $20 per share. - A high dividend yield. Say 5% or higher. For your $1,200, you feel like a high roller owning 100 shares of a $12 stock such as Ford rather than, for example, a measly 0.78125 of another [Gen Z favorite](, Chipotle Mexican Grill (CMG). And it’s alluring to collect a robust dividend income relative to the company’s stock price. That last part is the key: relative to the company’s stock price. For a refresher on what dividend yield is and why it matters, see this [April installment]( of The Juice. Today, we take it to the next level. We test whether $12 Ford, yielding just over 5%, is a solid long-term investment. To calculate dividend yield, you divide the annual dividend payment by the stock price and multiply the result by 100. Ford’s annual dividend of $0.60 per share divided by its $11.77 share price as of Thursday’s close, then multiplied by 100, generates a 5.1% dividend yield. If you own 100 shares of Ford, worth $1,177, you can expect about $60 in annual income, which is 5.1% of $1,177. Is Ford a Yield Trap? Because yield is a function of stock price, the lower the stock price, the higher the yield. A yield trap is a stock with a low price and high yield for an unappealing reason. As in the company is in trouble, which means the dividend payment could be in jeopardy. One way to see if you’re about to fall into a yield trap is using a stock screener, such as [this one]( from Finviz. Filter for stocks priced under $20 with dividend yields over 5%. When you do this, too many stocks to list come up. 782 total. Next, filter for stocks with healthy payout ratios of less than 40%. Last month, The Juice [explained]( what a payout ratio is and why it matters: A payout ratio is the ratio of dividends a company pays relative to its net income. The lower the better. Anything over 50% raises a red flag that a company’s dividend might not be sustainable. It indicates a company pays out more than half its earnings to cover the dividend. Payout ratio basically assesses a company’s ability to continue to pay its dividend. When you add a filter for payout ratios of less than 40%, the list of 782 stocks shrinks to 61. With its forward-looking payout ratio of 33%, Ford makes that list. But 61 stocks is still too many. There could still be yield traps there. So we add two more filters: One for positive earnings per share (EPS) growth expectations for the next five years and another for positive quarter-over-quarter sales growth. This reduces the list to a more manageable 15 stocks, which include Ford. The Bottom Line: With Ford, dividend investors get the best of both worlds – growth and income. Depending on the pace at which Ford increases its dividend payment – assuming it does – the dividend yield might decrease as the stock presumably moves higher. This is a good thing. Ideally, you want a growing share price alongside a growing dividend payout, not merely a high yield. It beats the heck out of what you often get with yield traps: a high dividend yield and falling stock price. And in the worst cases, unsustainable dividends that the company cuts or eliminates completely because it can no longer afford to pay them. To keep it positive on a Friday, The Juice gave you an example of a stock we don’t consider a yield trap. We like Ford as a long-term investment. In a future edition of The Juice, we’ll show examples of high-yield stocks you should probably stay away from. News & Insights Freshly Squeezed - [Snap Inc Remains in the Throes of a Bear Market]( - [Bear market expert issues new warning (Ad)]( - [Elon Musk Plans to Gut Twitter Workforce: Report]( - [11 Best Income Stocks to Buy Right Now]( [We want to hear from you! Let us know your thoughts by clicking here]( # [submit to reddit]( [submit to reddit]( [submit to reddit]( [submit to reddit]( To ensure delivery of all emails, [allow us on your list](. 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