Is a 4.54% Dividend Yield Enough to Make This Stock a Buy for Income Investors?

The stock market is a huge arena in which participants play different games. Some investors care about capital growth, while others want stability. And there are those that want the businesses they own to generate a steady income stream.

There's a well-known company that might draw your interest. But is a 4.54% dividend yield enough to make this stock a buy for income investors?

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This business is entering a new market

On May 11, Ford (NYSE: F) announced its new subsidiary, called Ford Energy. This segment will provide "battery energy storage systems (BESS) for utilities, data centers, and large industrial and commercial customers in the United States." The stock popped in the days following the news, probably driving excitement from investors about a potential artificial intelligence-fueled growth engine entering the mix.

Despite the announcement, which is getting a lot of attention, Ford is still an auto manufacturer. And this is what affects its financial performance. It sold 457,000 cars, generated $43.3 billion in total revenue, and produced $2.5 billion of net income in Q1 (ended March 31).

This is what supports its $0.15 quarterly dividend payout. Capital returns have been a priority for the executive team.

Cyclicality makes the dividend less safe

Ford's recent push into BESS is an exciting development for investors. It shows that management is focused on leveraging its assets and expertise to position the business to benefit from a major technological trend.

But this business is still a car company. And that comes with some disappointing realities. Ford's long-term revenue growth and profit trends are weak. And it faces intense competition from domestic and foreign rivals.

Demand for new cars is also cyclical. Households will delay buying vehicles in adverse economic scenarios. This can result in substantial top-line pressure for the company.

If Ford's sales decline, its profits will also take a massive hit. That's because the business has sizable fixed expenses, as it depends on achieving a certain level of revenue in order to operate with sustainable profits. The leadership team will likely reduce or pause the dividend in an effort to conserve cash should sales dip notably.

The average dividend yield of the S&P 500 index is 1.06%. So, Ford's 4.54% yield is a hefty upgrade. Investors that are comfortable with the lack of certainty surrounding the durability of this payout, due to the cyclical risk mentioned, will probably consider buying this automotive stock.

However, it's worth knowing that this opportunity is far from the surest bet, as the income stream is exposed to macro forces.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.