American automotive giant
is returning capital to shareholders again—and its stock rose Friday.
The market reaction, however, lagged behind the boost Ford Motor (ticker: F) shares received when that company reinstated quarterly payments to shareholders. There’s good reason for that.
(GM) looks like it is being a little more conservative than its crosstown rival.
GM is going to pay investors a dividend of 9 cents a quarter. The company is buying back up to $5 billion in stock as well.
GM shares gained 2.5% in Friday trading. The
Dow Jones Industrial Average
fell about 1.2% and 0.9%, respectively.
“GM is investing more than $35 billion through 2025 to advance our growth plan, including rapidly expanding our electric vehicle portfolio and creating a domestic battery manufacturing infrastructure,” said CEO Mary Barra in a news release. “Progress on these key strategic initiatives has improved our visibility and strengthened confidence in our capacity to fund growth while also returning capital to shareholders.”
A dividend, of course, is a vote of confidence from management. It signals a belief that cash flow will be strong for years to come.
At 9 cents a quarter, or 36 cents a year, GM stock will be yielding a little less than 1%.
is paying investors 15 cents a quarter, or 60 cents a year, and its shares are yielding closer to 4%.
When Ford reinstated its dividend back in October 2021, it started with 10-cent quarterly payments. Back then, that gave Ford stock an expected yield of about 2.6%. The dividend announcement sent Ford stock up 8.7% on Oct. 28.
Ford, of course, suspended its dividend in early 2020, amid the Covid-19 pandemic, just like GM and many other companies. GM’s most recent dividend was a payment of 38 cents a share back in March 2020.
Cash flow, of course, underpins all returns of capital to shareholders. GM has generated positive free cash flow in seven of the eight quarters since the pandemic struck. Over the past year, GM has generated cumulative free cash flow of about $3 billion.
A 36-cent annual dividend — four quarters at 9 cents — will cost GM roughly about $500 million a year, a figure the company looks to be able to handle easily. Wall Street projects GM’s average annual free cash flow will top $5 billion a year for the next few years.
Ford is spending roughly $2.4 billion a year on dividends. That’s about half of the company’s projected cash flow over the coming couple of years.
Ford is a little more aggressive. But the company’s structure could be partly responsible. The Ford family owns about 71 million shares of “B” stock that carry 36 votes per share. That gives them substantial control of the company. If the family prefers dividends to buybacks, then it’s tougher for the board to object. Ford didn’t immediately respond to a request for comment from Barron’s.
GM, it should be noted, also is buying back stock. GM recently began buying back some stock, with a repurchase about $2.1 billion of preferred shares in the second quarter of 2022. Those were held by
(9984.Japan) and related to GM’s self-driving car business Cruise. Still, they increase GM’s ownership in an asset, benefiting the existing shareholders. The last significant repurchase of common stock was back in 2017.
Benchmark analyst Mike Ward noted in a report Friday that the mix of dividends and repurchases gives GM a little more financial flexibility. He rates GM shares Buy. His price target is $60 a share. He also rates Ford stock a Buy. His Ford price target is $23 a share.
Ford hasn’t bought stock back recently. Its last substantial repurchase came in 2019.
As far as Ford and GM are concerned, it looks like investors prefer dividends to buybacks.
Write to Al Root at firstname.lastname@example.org
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