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Reinventing the Wheel: A New Investment Landscape for 2024 and Beyond Forget Ford Stock, Buy This Instead For 2024 and Beyond

Legacy automakers faced a tumultuous 2023, contending with the challenge of constructing “data centers on wheels” while contending with the relentless competitive onslaught from electric vehicle (EV) pioneer Tesla (NASDAQ: TSLA). Rising EV production costs, surging union wages, and escalating interest rates curtailed demand for new vehicles, prompting automakers to scale back their efforts in deploying new electrified models.

Despite these headwinds, Ford (NYSE: F) weathered the storm in 2023, generating a total return of nearly 16%. Trading at just under 8 times trailing 12-month earnings per share, Ford’s shares still present an appealing value proposition.

Exploring Alternatives: A Better Buy than Ford?

Before diving into any stock reliant on dividend payments for returns, investors should compare the annual dividend yield to potential returns from investing in bonds.

Following the U.S. Federal Reserve’s hike of its short-term interest rates to over 5.5% in recent years, bonds are once again proffering attractive interest income. The Vanguard Total Bond Market ETF (NASDAQ: BND) presently yields just over 4.3% annually, not far from Ford’s 4.9% dividend yield. Alternatively, for those tolerant of higher volatility in pursuit of greater yield, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEMKT: HYG) offers a 7.3% yield, primarily invested in “junk bonds,” or debt of companies rated below investment grade by credit rating agencies.

The pivotal question for investors at this juncture pertains to the desirability of Ford’s dividend amidst potentially erratic business growth and profitability in the midst of its transition to a new era of software-defined vehicles. Bonds may offer a comparable, if not superior, investment return with lower risk, much as they did over the past decade.

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Data by YCharts.

Weighing the Risks in Pursuit of High-Yield Returns

Prior to allocating funds to Ford stock or a bond ETF, it’s imperative to acknowledge Warren Buffett’s bias towards high-quality stocks for long-term investments. While stock ownership outperforms other forms of investment in terms of growing profitability over extended periods, it comes hand in hand with higher volatility, a factor that even dividends, including Ford’s, cannot fully offset.

Notwithstanding Ford’s struggle to sustain growth over the past few decades, it is grappling with a pivotal period in the automotive industry as technology disrupts traditional vehicle manufacturing. Before committing to the seemingly enticing Ford stock with its lofty dividend yield, considering an investment in a bond fund such as the Vanguard Total Bond Market ETF may be prudent, especially if long-term stock ownership isn’t a viable option.

Should you invest $1,000 in Ford Motor Company right now?

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Nicholas Rossolillo and his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla and Vanguard Bond Index Funds-Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.