Will General Motors (NYSE:GM) start paying a dividend again?
GM hasn't paid a dividend on its common stock since before the economic crisis, but that might change soon. Several things have happened recently that make a dividend look like a real possibility.
One big development: The U.S. government will be selling the last of its GM shares. As Fool contributor John Rosevear explains in this video, that's one factor that makes it likely that GM will reinstitute a dividend on its common stock soon -- perhaps as early as the first quarter of next year.
An abbreviated transcript of the video:
Hey Fools, it's John Rosevear with an intriguing question: Will General Motors start paying a dividend soon? Several things have happened recently that make a dividend look like a real possibility, maybe as soon as the first half of next year. The big thing is that the U.S. Treasury has said that it will sell the last of its GM stock by the end of December. That's the stock that the government got in repayment for GM's 2009 bailout, and once it's all sold that will bring the "Government Motors" era to an end. Meanwhile, GM is sitting on a ton of cash. The company had $28.6 billion on hand as of the end of the third quarter, and total "liquidity", meaning cash plus credit lines, of over $37 billion. Now, GM's leaders would argue that the company needs a big cash hoard. They call this the "fortress balance sheet", and the idea is that if a big recession comes along and squeezes GM's profits, the company will have the cash to keep its product development programs going. As we saw with Ford during the economic crisis, being able to launch new products during a deep recession when other automakers are cutting back can be a huge competitive advantage, and GM's current management is determined to have that ability when the next nasty recession comes along. But they probably don't need $37 billion in liquidity to be able do that, and it's possible that some of that money will get paid out as dividends to shareholders sometime next year. GM CEO Dan Akerson has said that he is very aware that the company exists to profit its shareholders, and he has repeatedly hinted that some initiatives would be forthcoming once the Treasury was done selling. Now, there could also be a GM share buyback in the works. It seems very likely that GM will be buying back some shares next year. The Canadian government and the province of Ontario each also got some GM stock as repayment for bailout assistance, and it's widely expected that GM will buy those shares back next year. Whether the company will launch a larger share buyback is an open question. It's something that some analysts have argued for, but I think it's much more likely that GM would start its efforts to give some cash back to shareholders by declaring a dividend on its common stock. And I think there's a strong likelihood that that will happen, maybe as soon as the first quarter of 2014. We'll see, but it'll be great news for the stock when it happens. Thanks for watching, and Fool on.
Fool contributor John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.