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How Safe Is Ford Motor Company's 4.8% Dividend?

Investors of a certain age might remember Ford Motor Company (NYSE:F) as a rock-solid dividend stock. The Blue Oval paid shareholders a dividend every year from its IPO in 1956 until 2006, when then-CEO Alan Mulally cut spending as far as he dared in a last-ditch effort to save the deeply troubled automaker.

That effort was a great success, of course. Ford is once again paying a strong dividend to its shareholders. In fact, as I write this, Ford's dividend yield is hovering at a very attractive 4.8%.

But will Ford's dividend be at risk during the next recession?

Strong sales of pickups and SUVs have had Ford's profits near record levels for the last two years. But what happens when the economy turns? Image source: Ford Motor Company.

How to tell if Ford Motor Company's dividend is safe

Generally, when we look at a company's ability to pay dividends, we consider its free cash flow (FCF). That's the right thing to do. But in this case, it might be a little misleading. Ford's a complicated company, a multinational that includes among its business units a bank -- Ford Credit, its in-house financing arm.

The presence of Ford Credit complicates a lot of the numbers aggregated by financial sites. For Ford and its dividend, it's best to look at a non-GAAP number that Ford reports every quarter: automotive operating cash flow.

Ford's expression of automotive operating cash flow is pre-tax profit from its automotive businesses (excluding Ford Credit, in other words), minus capital spending, depreciation and amortization, and other changes in working capital. It's the number that Ford's...