What happened
Shares of General Motors (GM +0.35%) jumped 5.3% as of 12:10 p.m. EST on Thursday in response to a bullish note from analysts at Argus Research.
Argus upgraded GM shares from hold to buy this morning, and assigned the automaker a $56 price target.
Image source: Getty Images.
So what
The analyst said that, based on most standard metrics, GM shares appear favorably valued. Although the stock sells for 18.7 times earnings currently, most analysts expect business to improve sufficiently in 2021 to give GM a valuation of 6.8 times forward earnings. Argus also points out that GM has a strong balance sheet and is generating solid cash flow at high profit margins, reports StreetInsider.com.
Beyond those numbers, though, Argus seems especially impressed by GM's efforts to diversify with electric and autonomous vehicles. It singled out the company's Chinese joint venture and its Ultium rechargeable battery for particular praise.
Now what
For dividend investors, there's even more good news. Because GM is generating such high margins and such solid cash flow, Argus anticipates that GM will reinstate its dividend soon. Historically, GM has been a generous dividend payer. It was only because of the financial strain caused by the pandemic that GM suspended dividends in the second quarter of 2020.
How big a dividend might shareholders expect? GM had usually devoted in the neighborhood of 25% of its annual profits to dividend payments and sometimes more. With analysts forecasting as much as $6 per share in pro forma profit this year, it's not out of the question that GM could pay a dividend of as much as $1.50 a share, which would make for an above-average yield of 2.9%.
Fingers crossed.
