Why Ford Investors Might Have to Say Goodbye to Its Special Dividend

Dividend stocks are a great tool for investors to build long-term wealth in the market. Reinvesting these dividends uses the power of compounding to help generate even more wealth over time. Ford Motor Company's (NYSE: F) dividend is lauded for its yield that currently tops 4%, as well as the company's consistent supplemental dividends it often dishes out as a bonus payment to investors.

Let's take a look at a recent example of why these supplemental dividends are powerful and why they could be in danger in the near term.

Remember Rivian?

A great example of how lucrative these supplemental dividend payments can be happened in 2023. Originally, Ford had invested in young start-up electric vehicle maker Rivian, with plans for the two to collaborate on a shared platform.

Image source: Ford Motor Company.

Later on, the plans were eventually scrapped, and each automaker went its own way. When Ford sold its investment stake in Rivian, it drove a significant boost in the company's cash flow, which it distributed through its dividend. Remember that Ford aims to return 40% to 50% of its free cash flow to investors via the dividend. That scenario led to Ford dishing out a significant $0.65 per share special dividend in 2023, on top of its regular quarterly dividend payment of $0.15 per share.

In more recent years, Ford's annual supplemental dividend has been roughly one extra quarterly payment, give or take a few pennies. It's a nice boost on top of an already highly valuable dividend yield. Unfortunately, due to some unforeseen circumstances, Ford's supplemental dividend could be on the chopping block this year.

What's going on?

Ford is dealing with a couple of outside factors weighing on its financials. In fact, Ford previously noted that while its underlying business was performing at the high end of previous guidance, it was incurring a $1 billion net tariff headwind as well as an additional $1 billion headwind between 2025 and 2026 from the Novelis supplier fire.

Ultimately, while Ford has dished out a supplemental dividend three years running, the company's slowing cash flows will likely end that streak. In fact, Ford recently announced a massive pivot away from EVs that will cost the company a $19.5 billion charge with $5.5 billion in cash incurred over the next two years.

Dividend stocks historically outperform non-dividend-paying stocks, and income investors can still find immense value in Ford's traditional 4.2% dividend yield, but don't count on supplemental dividends in the near term.

Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.