Value Investors Like Ford Stock's 3.89% Yield, Low P/E and Option Income Plays

Ford (F) recently raised its dividend to 15 cents quarterly taking it back to its pre-Covid annual level of 60 cents annually. This now gives F stock an attractive 3.89% dividend yield as of Sept. 9 when it closed at $15.42 per share. 

Along with its very low P/E multiple and short option income plays, these factors make Ford attractive to value investors.

Value Stock Play

For example, investors now forecast that the company will make $2.09 this year, according to the average of seven estimates surveyed by Barchart.com. That gives the stock a forward price-to-earnings (P/E) multiple of just 7.4x for 2022. That is very low especially compared to other car manufacturers.

Granted, analysts forecast flat earnings for next year at just $2.07 per share. But Ford has big plans and is in transition to becoming a substantial electric vehicle (EV) manufacturer. 

Moreover, the company is now generating consistent adjusted free cash flow (FCF). Last quarter ending June 30, it made over $3.6 billion in adj. FCF. This more than covers the 15-cent dividend, which costs only about $603 million as the company has just over 4 billion shares outstanding (4.02 b).

In addition value investors are interested in the short options income plays now available with the stock.

Covered Call and Short Put Income Plays

Investors can make significant income shorting near-term covered calls and also cash-secured puts in Ford stock. For example, look at the call options chain below for Oct. 7, 28 days from now.

This shows that the $17.00 strike price, which is just over 10% higher than today's $15.42 price (Friday, Sept. 9), offers a premium of 18 cents per call contract. Here is what that means.

If an investor purchases 100 shares of F stock at $15.42, spending $1,542, and then shorts 1 call option at $17.00 per share for expiration on Oct. 7, his account will immediately receive $18.00. That represents an immediate return of 1.167% for the investor, regardless of what happens to the call option or the stock price. 

In fact, unless the stock rises by over 10% to $17.00 by Oct. 7, any gain in the stock accrues to the covered call investor. Even it rises to $17.00 or higher, the investor keeps the 10.2% capital gain, along with the 1.167% covered call yield. 

That is a very good return for most investors. It works out to an annualized yield of 14% from the covered call option play alone. Moreover, the investor gets to keep any of the dividends paid out during the call option period.

A cash-secured put income also provides good income to an investor. The put option chain below shows that the $14.00 strike price provides 22 cents in put option premium.

This means that the investor who puts up $1,400 in cash with his brokerage firm can then sell short one put option contract at the $14.00 strike price level. Then he will immediately receive $22.00 in his account. That works out to an immediate return of 1.57% for the short put investor. If this can be repeated each month, the annualized return is over 18.8%.

However, the cash-secured short put investor won't make any capital gain if the stock rises. In addition, the short put investor won't make any dividend income. This is why sometimes investors are interested in doing both the covered call and the cash-secured put at the same time.

This shows why value investors are now very interested in Ford stock, given it high yield, low P/E, and ways to make money with covered calls and short put investments.

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