General Motors Co. (GM) is closer to issuing a dividend, the first since suspending the payout in July 2008, and knows investors are expecting one, according to the automaker’s chief financial officer.
“It’s clear to us that investors are anticipating a dividend,” Dan Ammann told reporters yesterday in Detroit at an event in advance of the North American International Auto Show. “We’re closer than we have been given all of the actions that have been taken.”
GM, which reports earnings in February, is likely headed for its 16th straight quarter of profit. The company has improved its cash flow and has fewer outstanding preferred shares following its 2009 bankruptcy reorganization. The U.S. Treasury sold its remaining stake in the automaker last month and Mary Barra is slated to become chief executive officer Jan. 15 as Dan Akerson retires. Ammann will become president of GM.
The automaker’s executives have said the company wants to maintain a “fortress balance sheet” that can withstand a sharp economic downturn, as well as return cash to shareholders.
With a low valuation and analysts projecting that free cash flow will rise this year, Harry J. Wilson, a member of the U.S. auto task force that helped rebuild the Detroit-based automaker, has said activist investors may push for more dividend payouts or stock buybacks.
Investor optimism in the company rose last year as the government sold its stake and GM brought out 18 new or refreshed vehicles in the U.S., pushing the shares up 42 percent.
Ammann spoke to reporters after an event to reveal the GMC Canyon, a mid-sized pickup that arrives in U.S. showrooms later this year. After the unveiling, Barra was swarmed by reporters eager to ask their first questions of her since it was announced in December that she would become CEO.
“It’s really an honor,” she told the throng. “If I can motivate young women and young men to pursue a career in science” and technology area “that would be a huge win.”
Barra said she plans to bring a collaborative leadership style to GM.
“We’re going to continue with the strong momentum that we have and we’re going to stay focused on the customer and we’re going to stay focused on strong cars, trucks and crossovers,” she said.
In September, the company announced an effort to buy almost half of the United Auto Workers retiree health-care trust’s preferred shares, which paid a 9 percent annual interest, and replacing it with a bond offering.
J. Kyle Bass, Hayman Capital Management LP founder, has said GM should increase in value by more than 40 percent in 12 to 18 months, basing his projections for the stock gain on the automaker issuing a dividend equal to half of its 2014 free cash flow, which he estimates as $4.1 billion. That’s more than what some analysts predict the automaker will spend.
Joseph Amaturo, an analyst at New York-based Buckingham Research Group Inc., said in a Nov. 21 note to clients that GM may start offering an annual payout of 80 cents a share this year that would cost about $1.2 billion.
Brian Johnson, an auto analyst for Barclays Plc, has said that GM has sufficient cash and liquidity to pay an annual dividend of 40 cents a share and repurchase stock in addition to buying back remaining common shares owned by the Canadian government and a union health-care trust.
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