American automotive giant
it is returning capital to shareholders again, and its shares were rising.
However, the market reaction seems to be delayed. ford engine (ticker: F) shares received when that company reinstated quarterly payments to shareholders. There is a good reason for that.
(GM) appears to be a bit more conservative than its rival across town.
GM is going to pay investors a dividend 9 cents a quarter. The company is also buying up to $5 billion worth of stock.
GM shares rose 2.1%. the
it fell around 1.2% and 0.7%, 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 the CEO. Mary Barra in a press release. “Progress on these key strategic initiatives has enhanced our visibility and strengthened confidence in our ability to finance growth while returning capital to shareholders.”
A dividend, of course, is a vote of confidence from management. It signals the belief that cash flow will be strong for years to come.
At 9 cents a quarter, or 36 cents a year, GM shares will return just under 1%.
it’s paying investors 15 cents a quarter, or 60 cents a year, and its stock is returning closer to 4%.
When Ford reinstated its dividend in October 2021, it started with quarterly payments of 10 cents. Back then, that gave Ford shares an expected return of about 2.6%. The dividend announcement sent Ford shares up 8.7% on Oct. 28.
Ford, of course, suspended its dividend in early 2020, amid the Covid-19 pandemic, as did GM and many other companies. GM’s most recent dividend was a payment of 38 cents per share in March 2020.
Cash flow, of course, underpins all returns on 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 generated cumulative free cash flow of about $3 billion.
An annual dividend of 36 cents (four quarters at 9 cents) will cost GM roughly $500 million a year, a figure the company appears to be able to handle easily. Wall Street projects that GM’s average annual free cash flow will exceed $5 billion a year for the next several years.
Ford is spending roughly $2.4 billion a year on dividends. That’s about half of the company’s projected cash flow for the next two years.
Ford is a bit more aggressive. But the structure of the company could be partly responsible. The Ford family owns about 71 million “B” shares that have 36 votes per share. That gives them substantial control of the company. If the family prefers dividends to buybacks, it is more difficult for the board to object. Ford did not immediately respond to a request for comment from Barron’s.
It should be noted that GM is also buying back shares. GM recently started buying back some stock, with roughly $2.1 billion of preferred stock repurchased in the second quarter of 2022. Those were held by SoftBank (9984.Japan) and related to GM’s self-driving car business, Cruise. Still, they increase GM ownership into an asset, benefiting existing shareholders. The last significant buyback of common shares was in 2017.
reference analyst Mike’s room noted in a report Friday that the combination of dividends and buybacks gives GM a little more financial flexibility. Rate GM Stock Buy. Your target price is $60 per share. It also rates Ford stock as Buy. Your target price on Ford is $23 per share.
Ford hasn’t repurchased stock recently. Its last substantial buyback came in 2019.
As far as Ford and GM are concerned, investors seem to prefer dividends to buybacks.
Email Al Root at firstname.lastname@example.org