Last update on 2024-06-28

General Motors (GM) - Dividend Analysis (Final Score: 3/8)

General Motors (GM) has a score of 3/8 in its dividend analysis. It reviews the performance and stability of GM's dividend policy using an 8-criteria system.

Short Analysis - Dividend Score: 3

We're running General Motors (GM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

General Motors (GM) underperformed in assessing their dividend policy based on an 8-criteria system, scoring only 3 out of 8. Notable points include GM's current low dividend yield of 0.5351% compared to the industry average of 2.28%, irregular dividend growth with a negative average growth rate of -2.13%, and dividend payments that were inconsistent especially during 2003-2014 and again disrupted significantly by the COVID-19 pandemic. However, GM demonstrated a solid payout ratio of 4.85%, which is well below the 65% threshold indicating sustainable dividend management and a history of strategic share repurchases post-2015. Nevertheless, given the substantial fluctuations and historical gaps in dividend payments, GM may not be ideal for income-focused investors seeking steady and reliable dividend returns.

Insights for Value Investors Seeking Stable Income

For investors seeking consistent dividend income, General Motors might not be the best option due to its inconsistent and relatively low dividend yields, and fluctuating dividend history. However, if one's investment strategy includes potential growth and has a tolerance for past volatility, GM might still be worth keeping an eye on due to the company's sound payout ratio and strategic buybacks. Therefore, GM could be considered by those with a balanced approach to investing but is not strongly recommended for pure dividend-focused decisions.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It reflects the return on investment for shareholders from dividends alone and is essential for comparing income distributions across companies.

The current dividend yield of General Motors (GM) at 0.5351% is substantially lower than the industry average of 2.28%. Historically, GM's dividend yield has fluctuated, with significant yields in the mid-2010s (ranging from 3.4374% in 2014 to 4.6353% in 2017), reflecting more generous dividend distributions. However, recent years show a drastic reduction in dividend yield, potentially signaling financial conservatism, adverse economic conditions, or redirection of funds to other uses such as R&D. This low dividend yield could be unappealing to income-focused investors, especially given the higher industry average. This suggests GM might be less attractive compared to peers in terms of dividend returns, which is a negative indicator for dividend-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

criterion of Dividend Growth Rate higher than 5% in the last 20 years

Looking at the dividend data from 2003 to 2023 for General Motors (GM), we see an irregular pattern with zeros indicating no payout between 2003 and 2014. Starting in 2015, dividends fluctuate significantly, including drastic negative values in several years. The average dividend growth ratio is -2.13%. This negative average, combined with significant fluctuations, indicates poor consistency and reliability in dividend growth. Thus, GM fails to meet the Dividend Growth Rate criterion of higher than 5%. Such volatility and inconsistency in dividend payouts are typically unattractive for dividend-focused investors seeking steady and reliable returns.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% in the last 20 years

The average payout ratio is 4.848138095238095, based on the given values. This figure is substantially lower than the 65% benchmark, which indicates a strong capacity for dividend sustainability. Furthermore, the consistency in staying significantly below the threshold shows prudent dividend management, especially considering the volatility seen in the automobile sector. The highest payout ratio was seen in 2015 at -73.3647%, but this seems like an anomaly rather than a regular occurrence. Generally, the payout ratio indicates plenty of room for future dividend distributions, suggesting a secure position in terms of dividend payments.

Dividends Well Covered by Earnings?

Explain the criterion for General Motors (GM) and why it is important to consider

The earnings per share (EPS) and dividend per share (DPS) metrics are crucial in evaluating the sustainability of dividend payments. EPS represents the portion of a company's profit allocated to each outstanding share of common stock, indicating the company’s profitability. DPS, on the other hand, signifies the actual sum paid out to shareholders in dividends for each share they hold. Together, these metrics tell us whether GM is generating enough earnings to cover its dividend payments, making it a vital factor in dividend analysis.

Dividends Well Covered by Cash Flow?

Explanation of why cash flow coverage is important for dividends

Dividends well covered by cash flow means that a company generates enough free cash flow (FCF) to pay its dividend obligations. This is a crucial metric because it speaks to the company's ability to sustain its dividend payments without compromising its financial stability. High coverage ratios are generally viewed as a positive sign.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments demonstrates a company’s consistent financial health and ability to generate profit, making it a critical component for income-seeking investors.

Evaluating General Motors' dividend payments over the past 20 years, one can observe a notable period from 2003 to 2010 where no dividends were issued. In 2011 and 2012, dividends remained at zero before resuming in 2013. The dividends briefly surged from $1.38 in 2014 to $1.9 in 2017 but saw a significant reduction to $0.38 in 2020, primarily due to the COVID-19 pandemic's impact on global industries. This was followed by dividend suspensions in 2021, and only marginal resumption in subsequent years. Because GM's dividends have faced considerable fluctuations and sharp declines, often exceeding the 20% threshold, this performance is deemed unfavorable for income-seeking investors relying on consistent dividend stability.

Dividends Paid for Over 25 Years?

Examining if a company has paid dividends consistently over 25 years indicates stability and reliability. Long-established dividend payouts can attract conservative investors.

Upon scrutinizing the dividend payment history of General Motors (GM) from 2000 to 2023, it becomes apparent that GM has not paid consistent dividends over the past 25 years. The data shows dividend payments starting in 2014 and fluctuating over the subsequent years, including a substantial gap in payments in 2020 and 2021, presumably influenced by the COVID-19 pandemic. Such inconsistency can be viewed as a negative sign, as it does not reflect the stability or reliability expected by long-term income-focused investors. Thus, GM's dividend payment history over the past 25 years is not favorable for investors seeking consistent income.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for General Motors (GM) and why it is important to consider

The focus on reliable stock repurchases over the past 20 years provides critical insight into General Motors' (GM) capital allocation strategy and its commitment to returning value to shareholders. Our analysis reveals that General Motors had notable share repurchases predominantly from 2015 onwards. Between 2008 and 2014, the number of shares outstanding either plateaued or increased notably due to the company's restructuring and bankruptcy proceedings in 2009. Consistent share repurchases can signify a company's belief in its undervaluation or a strong cash flow position. General Motors' fluctuating approach might indicate varying stages of recovery, growth, and financial stability post-recession. The steady decline in outstanding shares from 2015 to 2019, followed by a disruption in trend during 2020-2021 amidst the COVID-19 pandemic, aligns with broader economic instabilities. A notable resumption of share buybacks is evident in 2022 and 2023. Despite an average repurchase rate of only approximately 5.92 years out of the past 20 years, the discernible effort post-2015 signals General Motors' reinforced commitment to enhancing shareholder wealth in recent periods. However, this intermittent trend suggests that while GM aims at buybacks, external economic and internal strategic factors profoundly influence these decisions. The trend shows good foresight but less consistency, reflecting cautious optimism.