Ford’s fat dividend could be a casualty of tariffs

Ford has said President Trump’s new import tariffs, if sustained, would cause its earnings to tumble. A dividend cut would appear likely, based on Ford’s latest profitability guidance. If Trump expands tariffs beyond what has taken effect already, the payout reduction could be much greater than the market is expecting.

At $10 a share, Ford’s stock has a 6% dividend yield. That is based on its regular quarterly dividend of 15 cents a share, which has remained constant since mid-2022 and doesn’t include a 15-cent supplemental dividend paid this month. The last time Ford suspended its dividend completely was in 2020 after the pandemic broke out. Before that its regular quarterly dividend was 15 cents a share.

By comparison, General Motors’ dividend yield is about 1%, while Tesla doesn’t pay a dividend. Stellantis, the Dutch company that makes Chrysler vehicles, recently more than halved its dividend, and its yield still is 6%. Stellantis paid out more cash for dividends and stock buybacks last year than it earned, while its free cash flow was negative. It has said it expects positive free cash flow this year and is targeting a dividend-payout ratio of 25% to 30% of its annual net income.

Ford covered its dividend easily last year. Net income was $5.9 billion, up 36%, and it paid $3.1 billion of dividends. Ford’s guidance for 2025 didn’t include a figure for net income, but its profitability is in a downtrend.

Ford estimated its 2025 free cash flow—using its own unique, nonstandard definition—would be $3.5 billion to $4.5 billion. Importantly, Ford said that guidance didn’t factor in recently announced or future tariffs by the U.S. or other governments. Last year Ford’s free cash flow was $6.7 billion, more than twice its dividend payments. However Ford defines free cash flow, the number is declining.

Ford also spent $426 million last year on share repurchases. Combine those with the dividend payments, and the $3.5 billion in shareholder distributions were equivalent to the low end of this year’s guidance for free cash flow. As things stand, the trajectory for Ford’s capital returns this year is headed lower.

Ford says it targets shareholder distributions, including dividends and buybacks, of 40% to 50% of its free cash flow. Thus even the high end of its guidance signals a dividend cut. How big that will be hinges greatly on how hard any tariffs will hit. Ford has paid about $1.2 billion of dividends this year so far, including the supplemental payout. Its 2025 guidance implies $1.4 billion to $2.25 billion of dividends and share buybacks, combined.

Ford has some levers it could pull to free up cash for distributions. It could slow investments in its electric-vehicles business, where demand has been disappointing, but that would involve trade-offs. EVs are still a small percentage of Ford’s sales. But at least they have been growing, whereas sales of internal-combustion vehicles have been falling. Pausing investment now would risk falling further behind rivals.

Ford’s stock is up 1% this year, beating the S&P 500, which is down 4%. Analysts surveyed by Visible Alpha on average expect Ford’s regular dividend a share will drop to 12 cents next quarter from 15 cents currently. That easily could prove too high. Like Ford’s guidance, the estimate appears not to have baked in possible tariff effects.

The Trump administration’s 25% import tariff on most goods from Canada and Mexico took effect March 4. It later suspended those tariffs, until April 2, for autos and other goods eligible for duty-free trade under a prior trade agreement. Trump has said he won’t grant another extension. He also imposed new tariffs on all steel and aluminum imports, and, before that, on goods from China. The impacts on Ford could be profound. Each tariff prompted retaliatory measures from other countries, and the administration has promised still more tariff actions on April 2.

For anyone handicapping tariff policy, the one person whose opinion counts is Trump. Trying to guess what he’s thinking and translating that into a dividend forecast is a tall order. But for ordinary investors, here’s what matters: The risk to Ford’s dividend is high.

Write to Jonathan Weil at jonathan.weil@wsj.com