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GM Resets Share Buyback, Hikes Dividend

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With the value of its stock down substantially this year, General Motors confirmed it plans to move ahead with buybacks of the company’s shares despite a new federal tax on repurchases of corporate stock.

Barra two at Milken 2022
GM CEO Mary Barra confirmed the company’s plans to invest $35 billion in its electrification plans.

GM announced Friday it will resume “opportunistic” share repurchases. The announcement boosted GM’s shares to just $39 per share, which is still off significantly from the high of $65.74 per share GM share commanded in early January

The board also increased the capacity under the company’s existing repurchase program to $5 billion of common stock, up from the $3.3 billion previously remaining under the company’s previous stock buyback program.

GM making progress on key goals

“GM is investing more than $35 billion through 2025 to advance our growth plan, including rapidly expanding our electric vehicle portfolio and creating a domestic battery manufacturing infrastructure,” said Mary Barra, GM chair and CEO, in a statement.

“Progress on these key strategic initiatives has improved our visibility and strengthened confidence in our capacity to fund growth while also returning capital to shareholders,” she added.

2022 Chevy Bolt Orion plant
GM’s facing a number of production challenges as it expands its EV offerings, including semiconductors.

GM also announced it was re-instating the cash dividend the board suspended in April 2020 as the COVID-19 pandemic began to spread around the globe. The board authorized the reinstatement of a quarterly cash dividend on the company’s outstanding common stock at a rate of $0.09 per share. The first dividend will be paid on Sept. 15, 2022, to shareholders of record as of the close of business on Aug. 31, 2022, GM said.

Ford Motor Co. also has reinstated the quarterly dividend on its shares last fall.

The price of GM’s shares declined during the first half of the year as the market in general suffered a share pullback as inflation spiked and fears of a recession increased. But even with the market in broad retreat, investors also have begun to express skepticism about GM’s plans for electric vehicles. Other investors have been disappointed GM hasn’t moved faster to spin off Cruise, the high-tech subsidiary working on self-driving vehicles.

GM has forked over plenty of cash for buybacks

Over the years, GM used stock buybacks to placate restless investors. It spent an estimated $14 billion on stock buybacks between 2014 and 2018, and the buybacks continued in recent years even as the company moved to increase its spending on electric vehicles.

Cruise Origin turning a corner
Critics have chided Barra for not spinning off its autonomous subsidiary Cruise already.

Last month, GM reaffirmed its full-year profit outlook on an expected surge in demand but said it was curbing spending and hiring ahead of a potential economic slowdown after a 40% drop in net income disappointed shareholders.

GM also lined up a $2.5 billion in loans from the U.S. Department of Energy to help finance the construction of factories for battery cells used in electric vehicles. The loan to Ultium Cells LLC, a joint venture between GM and South Korean battery company LG Energy will would go to help fund three battery-cell plants the venture is developing in Ohio, Tennessee and Michigan, the DOE said.

The site of the fourth plant was revealed last week to be near South Bend, Indiana.

However, any stock repurchases by GM, or any other corporation is now subject to a 1% tax, which became law when Congress approved the new Inflation Reduction Act. The new tax on stock buy backs was promoted by progressive Democrats.

Supporters of the new tax contend that when companies use excess cash to re-purchase their stock rather than invest it in research and development, or capital expenditures that would benefit workers, the “financial engineering” is simply a maneuver to boost stock prices to enrich executives and shareholders.

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