General Motors (NYSE: GM) stock is trading higher in US premarket price action today after the company restored its quarterly dividend. The company, like Ford, suspended its dividend in 2020.
However, while Ford (NYSE: F) restored its dividend in 2021 only and now has a healthy dividend yield of 3.7%, which is over twice that of the S&P 500, GM refrained from doing so. It has now announced a quarterly dividend of 9 cents per share which would be paid on September 15. At the current stock price, the dividend yield turns out to be less than 1%.
Also, the dividend is around a quarter of what it was in 2020 when GM decided to suspend the dividend. 2020 was a particularly bad year for dividend investors. Several dividend-paying companies either lowered the payout or suspended the dividend as corporate earnings fell in 2020 amid the COVID-19 lockdowns.
While most companies restored the dividends, General Motors and Disney were the two notable exceptions. Both these companies are investing in growth, which is EVs (electric cars) in GM’s case and streaming in Disney’s.
General Motors’ dividend restoration is a sign that the company feels bullish about the business despite supply chain issues and recession fears. It also announced a $5 billion stock buyback after the slump in its stock. Both Ford and General Motors’ shares have plunged in 2022 even as they are posting healthy profits.
General Motors Restores Dividend, albeit at a Lower Rate
Commenting on the dividend restoration, Paul Jacobson, General Motors’ CFO said, “GM’s consistently strong earnings, margins and cash flow, our investment-grade balance sheet, and the achievement of several significant milestones in our growth strategy enables us to invest aggressively to accelerate our all-electric future while also supporting the return of excess free cash flow to shareholders, aligned with our long-term capital allocation strategy.”
General Motors is spending $35 billion on EVs and autonomous vehicles by 2025. The company expects to sell 1 million EVs by 2025 and has a goal of reaching EV revenues of $90 billion by the end of this decade. By 2035, the company intends to stop selling internal combustion vehicles.
It has been looking to secure the supplies of key battery materials as automotive companies scramble to meet the soaring demand for electric cars.
General Motors is Facing Supply Chain Issues
General Motors is facing supply chain issues and its US deliveries fell 15% to 582,401 vehicles in the second quarter of 2022. However, its market share in the US, which is the world’s most profitable automotive market, rose to 16.3%. The pricing has been quite firm amid the shortage of vehicles and the pent-up demand for new cars.
Meanwhile, while General Motors posted better than expected revenues in the quarter, its adjusted EPS of $1.14 came in below the $1.20 that analysts were expecting. Its EPS was $1.97 in the corresponding quarter of 2021.
Like fellow automakers, GM is battling a shortage of chips. It was unable to ship 100,000 cars to dealers due to the shortage of chips. The inventory build-up is also eating into the company’s cash flows.
Ford is also Pivoting Towards Electric Cars
Ford is also pivoting towards electric cars and beginning next year, it would report the results of the EV business separately from the legacy ICE business. F stock has soared after the Q2 2022 earnings release after posting strong earnings beat.
While some of the Wall Street analysts have turned bearish on F stock amid the recession concerns, Ivan Feinseth of Tigress advised buying Ford stock in May.
Ford has outlined aggressive plans for its electric vehicles. It is investing $50 billion in EVs until 2026 and is targeting a 50% EV mix by 2030 and carbon neutrality before 2050. Ford is ramping up EV production and forecasted production of 14,000 electric cars globally in July. It expects its annual EV production run rate to reach 600,000 by the end of 2023 and 2 million by 2026.
US Stocks Trade Lower as Meme Stock Trade Unwinds
US stock futures point to a weak opening today. Meme stocks are especially lower today after Ryan Cohen sold his entire stake in Bed Bath & Beyond. He is the biggest stockholder in GameStop also and the stock is trading lower today on fears that Cohen could sell GameStop shares also.
Many market participants had been raising concerns over the sudden spike in meme stocks and the trade is now unwinding.
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