Market Embraces General Motors’ Dividend Announcement, But Impact Looks Quite Modest
General Motors Company (NYSE: GM) this past week reinitiated its common dividend at a US$0.09 per-share quarterly rate. The company suspended dividend payments in April 2020, citing fears of a COVID-19 economic slowdown. The quarterly payout prior to the suspension was US$0.38 a share. In addition, the company announced it will resume “opportunistic” stock buybacks. The GM Board increased the share repurchase authorization to US$5.0 billion from US$3.3 billion remaining under the previous mandate.
GM’s CEO Mary Barra said the company has made sufficient progress on “key strategic initiatives,” which allow it to resume a dividend payout program. As recently as February, GM said its US$35 billion electric vehicle development spending program through 2025 would prevent a dividend resumption.
The stock market reacted positively to the dividend announcement, bidding the stock up nearly a dollar to US$39.70, but the return of capital plan actually feels fairly tepid in scope. A US$0.36 annualized dividend equates to a dividend yield of less than 1%, a level which seems unlikely to attract income-oriented investors. In addition, the pace of an “opportunistic” buyback seems to be, almost by definition, quite modest.
In late July, GM reported adjusted 2Q 2022 EPS of US$1.14, down markedly from US$1.97 in the year-ago period. The company’s 2Q 2022 revenues of US$35.8 billion were a few percentage points higher than 1Q 2022 levels. GM expects its production levels to improve in the second half of 2022; as a consequence, management maintained its previously issued full-year 2022 earnings and cash flow guidance.
| (in millions of US $, except for EPS and shares outstanding) | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 |
| Automotive Revenue | $32,814 | $32,823 | $30,349 | $23,424 | $30,744 |
| Operating Income | $1,689 | $2,196 | ($1,898) | $1,645 | $2,882 |
| Diluted EPS | $1.14 | $1.35 | $1.35 | $1.62 | $1.90 |
| Operating Cash Flow | $3,000 | $2,104 | $6,809 | ($49) | $7,162 |
| Cash – Period End | $17,908 | $26,256 | $28,676 | $23,940 | $29,131 |
| Automotive Debt – Period End | $16,909 | $16,892 | $16,818 | $17,022 | $17,318 |
| Shares Outstanding (billions) | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 |
Ms. Barra said that supply chain disruptions negatively impacted the company’s 2Q 2022 results, “especially in June.” This declaration could mean the problems persisted into 3Q 2022. Supply chain issues have been a problem at GM for some time. Over the last year, GM’s dealers have only been able to maintain 10-15 days of inventory. Prior to the pandemic, dealers typically had 60-90 days of vehicle inventory.
Details contained in the company’s 2Q 2022 results illustrate the high levels of inflation embedded in the economy — which will be difficult to eradicate. GM’s adjusted earnings before interest and taxes (EBIT) totaled US$2.3 billion in 2Q 2022, down from US$4.1 billion in 2Q 2021. Around US$1.8 billion of the US$2.3 billion EBIT figure traces to model price increases implemented since 2Q 2021.
General Motors shares, which trade at a P/E ratio of only 5.7x (based on the midpoint of company guidance), look inexpensive. Indeed, the stock has corrected nearly 40% since early January. However, if a Fed-induced economic slowdown were to occur, additional downside in the stock is not inconceivable. In such a scenario, investors often sell economically sensitive stocks like GM first, and ask questions later.
General Motors Company last traded at US$39.70 on the NYSE.
Information for this briefing was found via Edgar, Bloomberg, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
