When it comes to designing, producing, and selling highly profitable full-size trucks and SUVs, there may not be two closer rivals than Detroit's own Ford Motor Company (F 0.58%) and General Motors (GM 1.80%). Though fierce rivals in vehicle segments, the two automakers share a core value of returning significant value to shareholders.
Let's dive into how and why the automakers approach returning value differently, and why it's a big win for long-term investors.
Paying you direct
One popular reason investors have for scooping up shares of Ford is the automaker's high-yield dividend. In fact, Ford offers investors a combination of value, as the company trades at a modest price-to-earnings ratio of 11, as well as a dividend yield of 4.4% -- much higher than the S&P 500's average yield of just over 1.1%.
The difference a dividend can make in a long-term investment is significant. Take Ford, for instance. Over the past decade you can see the modest share price returns compared to the much larger total value returns that include dividends.
One unique aspect of Ford's dividend is that the interests of the Ford family are aligned with shareholders'. That's because the automaker has a special class of shares held by the Ford family that come with not only the common dividend but also substantial voting rights. It's well known that the Ford family enjoys the significant payout, and would prefer the company's dividend payments remain consistent and strong.
Ford is aiming to return 40% to 50% of its annual free cash flow (FCF) to shareholders through its quarterly dividends, as well as its supplemental dividends that it will dish out to shareholders during years of stronger FCF. The upside is that when Ford can reverse billions in electric vehicle losses in the near to medium term, more cash will be freed up for potential dividend increases.
NYSE: GM
Key Data Points
NYSE: F
Key Data Points
A different path
While Ford focuses on its lucrative dividend to return value to shareholders, rival General Motors drives down a different path. Rather than pay shareholders directly with dividends, GM focuses on stock buybacks to boost per-share earnings. For investors it's not important that GM is returning value to shareholders differently than its rival, but it is important for investors to understand just how substantial the automaker's share buybacks have been.
Image source: General Motors.
General Motors is clicking on all cylinders, having just beaten Wall Street estimates during the fourth quarter, announcing a 20% increase to its quarterly dividend, and initiating a brand-new $6 billion share repurchase authorization.
It's not a new move for the Detroit automaker. Since the beginning of 2023, GM has announced $22 billion in share buybacks and retired hundreds of thousands of shares outstanding. To put that information in context, it's best to view the company's significant decline in shares outstanding, which coincides with a rising share price over that time period.
What it all means
Currently, one primary reason to invest in Ford or General Motors is their commitment to returning significant value to shareholders, whether it's a lucrative dividend payment or significant share repurchases. For investors, the fact that these two automakers return so much value to shareholders is proof the companies are confident in their current investments for profitable growth and can maintain a strong balance sheet.
