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GM Dividend 2021 – The Case Of A Dividend That Yields 3%

GMC 2020 Terrain SUV. Source: www.gmc.com

General Motors (NYSE:GM) has been a dividend-paying company since 2014. Investors who have bought GM common stocks will receive quarterly dividend payments from the company.

However, GM has temporarily suspended the dividends starting in 2Q 2020.

Here is an excerpt extracted from GM’s 2020 annual filings regarding the dividends suspension:

  • In addition, we are restricted from paying dividends on our common shares if outstanding borrowings under the revolving credit facilities exceed $5.0 billion, with the exception of the three-year, $2.0 billion transformation facility.

Aside from the dividend suspension, GM also has stopped executing its share buyback program due primarily to the excessive debt taken during the COVID crisis.

As bad as it may sound, GM has actually repaid all amounts drawn under the revolving credit facilities as of 4Q 2020 according to the 2020 annual filings.

The good news is that General Motors is no longer restricted by the debt covenants from declaring dividends on common stocks.

While GM may pay a cash dividend going forward, it may not necessarily afford to do so.

In this article, we will take a look at a couple of things related to GM’s dividend metrics, including the dividend yield, cash dividend payment history, dividend rate, dividend affordability, payout ratio with respect to earnings and free cash flow, etc.

Let’s move on!

GM’s Trailing Dividend Yield

GM trailing dividend yield

GM trailing dividend yield

* Dividend yields are calculated on a trailing 12-month (TTM) basis and include all GM’s special dividends.

* Adjusted weekly close price for splits is used in dividend yield calculation in the chart above.

Let’s first look at GM’s historical dividend yield on a trailing 12-month basis.

Historically, GM’s dividends used to yield as much as 4.0% between 2014 and 2019, and the yield had soared to nearly 9% in 2020, thanks to the falling stock prices driven primarily by the COVID-19 pandemic.

Unfortunately, GM had decided to suspend the cash dividend indefinitely starting in 2Q 2020 in order to conserve liquidity.

Since then, GM’s trailing dividend yield started to fall.

As of Aug 2021, GM’s dividend yield measures at 0% as GM has yet to reinstate the distribution.

GM’s Annual Dividend History

GM annual dividend per common share declared

GM annual dividend per common share declared

* Annual dividend rate history is obtained from GM’s financial reports.

* GM’s fiscal year begins on Jan 1 and ends on Dec 31.

In terms of dividend rates, GM’s annual payout had increased from $1.20 USD per common share in 2014 to $1.52 USD per common share in fiscal 2016.

However, the dividend rate had remained unchanged at $1.52 USD per common share between fiscal 2016 and 2019.

In fiscal 2020, GM’s yearly dividend declared had declined to only $0.38 USD per common share due to the indefinite dividend suspension which started in 2Q 2020.

In fiscal 2021, GM has yet to reinstate the cash dividends and therefore, the annual dividend rate for 2021 is currently at $0 USD per common share.

For the last 6 years, GM’s average dividend growth measures at -8% per annum, driven negatively by the slump in the dividend rate in fiscal 2020.

While GM has yet to resume its cash dividends in 2021, the company had managed to increase and pay out the dividends without fail between fiscal 2014 and 2019 despite facing multiple challenges in the automobile industry during the said period.

GM’s Cash Payment For Dividends

GM's cash payments for dividends declared

GM’s cash payments for dividends declared

* Cash payment for dividend declared is obtained from GM’s consolidated statements of equity.

* GM’s fiscal year begins on Jan 1 and ends on Dec 31.

In terms of cash payments for the dividends, GM paid about $2 billion-plus in cash annually for the cash dividend declared.

In fiscal 2020, GM’s cash payments for the dividends dwindled to only $545 million, primarily due to the dividend suspension that the company has initiated.

In short, GM paid out roughly $2 billion in cash for the dividend declared on a yearly basis, a considerable large sum of money for the company when the respective automotive free cash flow averaged only $3.6 billion in the past.

GM’s Forward Dividend In 2021

Fiscal Year Dividend Declared Per Common Share ($ USD) Weighted Average Common Shares Outstanding – Diluted (In Millions) Cash Payment For Common Stock Dividends ($ Millions)
FY2018 Reported $1.52 1,431 $2,144
FY2019 Reported $1.52 1,439 $2,165
FY2020 Reported $0.38 1,442 $545
FY2021 Projected $1.52 1,445 $2,196

* FY2021 projected figures are based from the author’s own calculation.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.

While GM is currently a non-dividend-paying stock, it does not necessarily mean that the company will remain so forever.

There is always a possibility that GM will reinstate the suspended dividend in the future.

To find out if that possibility can become a reality in 2021, we are going to perform some reversed engineering on GM’s financials.

Let’s assume that GM will pay an annual dividend of $1.52 USD per common share as shown in the table above.

Keep in mind that the 2021 projected dividend rate of $1.52 is literally the same as the one which GM has paid in fiscal 2019.

Therefore, if GM could pay $1.52 USD per share in 2019, it also may afford to pay the same amount of dividend in 2021, considering that the company’s guided outlook is much better in 2021 than in 2019.

Assuming that GM’s common share outstanding will be totaling around 1,445 million units in fiscal 2021 as shown in the table above, the dividend rate of $1.52 USD per share will translate to about $2.2 billion in a cash payment.

The projected $2.2 billion cash payment for dividends is only slightly higher than the amount shown in fiscal 2019 and 2018.

Therefore, if GM could pay out $2.2 billion and $2.1 billion of cash in fiscal 2019 and 2018, respectively, there is a big chance that the company could do the same in fiscal 2021.

At a dividend rate of $1.52 USD per share, GM’s forward dividend yield will amount to 3% based on today’s stock price of $50.

GM’s Projected Outlook For 2021

GM's guided outlook for FY2021

GM’s guided outlook for FY2021

* FY2021 guided outlook in the snapshot above is extracted from GM’s 2Q 2021 earnings release.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.

The question is can General Motors pay as much as $2.2 billion in cash as dividends in 2021?

To answer this question, we have to look at GM’s projected earnings and free cash flow for fiscal 2021 which is shown in the snapshot above.

Since dividends are declared based on future earnings and free cash flow, there is a good chance that GM will reinstate the cash dividends if the projected figures are going to be much better than prior results.

That said, according to GM’s projected figures, the company is expected to earn between $11.5 billion and $13.5 billion in adjusted EBIT for fiscal 2021.

GM’s adjusted diluted EPS is projected to be between $5.40 and $6.40 USD per share in the same fiscal year.

Additionally, GM guided that the adjusted automotive free cash flow will be between $1.0 and $2.0 billion for fiscal 2021 after accounting for capital expenditures.

The next section shows a comparison of the FY2021 projected figures with that of fiscal 2020, 2019 and 2018.

GM’s Historical And Projected Earnings And Free Cash Flow

Fiscal Year Adjusted EBIT ($ Millions) Adjusted Diluted EPS ($ USD) Adjusted Automotive Free Cash Flow ($ Millions)
FY2018 Reported $11,783 $6.54 $4,400
FY2019 Reported $8,393 $4.82 $1,100
FY2020 Reported $9,710 $4.90 $2,600
FY2021 Projected $12,500 $5.90 $1,500

* FY2021 projected results are the average of the figures provided by General Motors.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.

According to the table above, GM is expected to earn an average adjusted EBIT of $12.5 billion for fiscal 2021.

This figure is 29% and 49% higher than the historical figures reported in fiscal 2020 and 2019, respectively.

Similarly, GM’s adjusted diluted EPS of $5.90 USD in fiscal 2021 is much higher than the figures reported in fiscal 2020 and 2019.

In terms of automotive free cash flow, GM’s projected figure of $1.5 billion is 42% lower than the result reported in 2020 but is 36% higher than the result in 2019.

In short, GM’s projected earnings and automotive free cash flow for fiscal 2021 are much better than the reported results in fiscal 2019.

GM’s Dividend to Earnings Payout Ratio

Fiscal Year Dividend Per Share ($ USD) Diluted Earnings Per Share – Company Adjusted ($ USD) Dividend To Earnings Payout Ratio
FY2018 Reported $1.52 $6.54 23%
FY2019 Reported $1.52 $4.82 32%
FY2020 Reported $0.38 $4.90 8%
FY2021 Projected $1.52 $5.90 26%

* Payout ratio is calculated by the author.

The case of a forward cash distribution of $1.52 USD per share in fiscal 2021 depends very much on the dividend to payout ratio.

As shown in the table above, GM’s cash dividend with respect to the adjusted earnings payout ratio measures at only 26% for fiscal 2021, a reasonable ratio compared to historical results.

In fact, the dividend-to-earnings payout ratio is relatively low at only 26%.

Therefore, GM should have enough earnings or profits to cover the cash distribution of $1.52 USD per share declared based on the projected results.

GM’s Dividend to Free Cash Flow Payout Ratio

Fiscal Year Cash Dividends Paid On Common Stocks ($ Millions) Adjusted Automotive Free Cash Flow ($ Millions) Dividend To FCF Payout Ratio
FY2018 Reported $2,144 $4,400 49%
FY2019 Reported $2,165 $1,100 197%
FY2020 Reported $545 $2,600 21%
FY2021 Projected $2,196 $1,500 146%

* Payout ratio is calculated by the author.

Similarly, the case of a forward cash distribution of $1.52 USD per share in fiscal 2021 also depends very much on GM’s projected free cash flow.

However, when it comes to the free cash flow payout ratio, GM seems to be doing quite poorly.

As shown in the table above, the projected cash payment for dividends in fiscal 2021 has far exceeded the amount of automotive free cash flow, notably at 146% of the projected figure.

Historically, GM’s dividends to free cash flow payout ratio averages around 60% prior to 2019.

Therefore, the FY2021 projected payout ratio is way above the average.

At a payout ratio that is far above the 100% threshold, GM may not afford a cash dividend that costs as much as $2.2 billion in cash as it means that the cash dividend alone will consume all of the projected automotive free cash flow.

In the worst scenario, GM may need to dig into the cash reserves to cover the shortfalls.

However, that is not a good idea as it is unsustainable to do so.

Even if GM were to go ahead to declare the distribution of $1.52 USD per share in 2021, the dividend may not be safe.

As shown in fiscal 2019 in which the dividend to free cash flow payout ratio has reached nearly 200%, GM suspended the dividend the following year in 2020.

In short, GM may afford to declare a cash dividend from the perspective of earnings, but it is unlikely to do so due to the limited automotive free cash flow.

GM’s Forward Dividend With 1% Yield

Fiscal Year Dividend Declared Per Common Share ($ USD) Cash Payment For Common Stock Dividends ($ Millions) Dividend To Earnings Payout Ratio Dividend To Free Cash Flow Payout Ratio
FY2021 Projected $0.50 $723 9% 48%

* FY2021 projected figures are based from the author’s own calculation.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.

While GM may not afford a distribution of as much as $1.52 per share in 2021, it may still be able to afford a lower distribution such as the one shown in the table above.

At a dividend rate of $0.50 USD per share, GM’s forward dividend yield will come to 1% at today’s stock price of $50.

Besides, the dividend to earnings and free cash flow payout ratios look reasonable and affordable enough for General Motors.

GM’s cash payments for the dividend will amount to only $723 million and this figure translates to a payout ratio of only 9% and 48% with respect to projected earnings and automotive free cash flow.

Keep in mind that the forward dividend to free cash flow payout ratio of 48% is much lower than the historical average figure of 60%.

Therefore, there is a great possibility that GM may initiate a cash distribution in 2021, albeit at a much lower rate than the one paid out in 2019.

While GM may not be able to afford a cash payout of $1.52 USD per share, it can definitely afford a dividend rate of $0.50 USD per share in 2021.

Do note that GM may split the $0.50 cash distribution to quarterly payout.

Conclusion

In summary, GM used to be a great dividend payer and has never failed to pay a cash dividend since 2014 on a quarterly basis.

Unfortunately, GM has suspended the dividends indefinitely since 2Q 2020, driven primarily by the COVID-19 outbreak.

The dividend suspension has made GM not a great dividend stock anymore and it sends out a message that the company’s businesses are vulnerable to recession in addition to a pandemic.

When a crisis hits the company, the dividend is the first to go for GM.

Therefore, investors who depend on the cash distribution from GM should do their due diligence and examine the company’s fundamentals from time to time, particularly the free cash flow.

In 2021, while GM may not afford a $1.52 USD per share of cash distribution, the company can choose to distribute a lower rate at $0.50 USD per share.

GM still can pay out the $1.52 USD per share of cash dividend but it is unlikely to be safe and sustainable due to the limited automotive free cash flow projected for fiscal 2021.

That said, at a dividend rate of $0.50 USD per share, GM’s forward dividend yield will come to about 1% at a stock price of $50.

GM’s shareholders will definitely be satisfied with a cash dividend that yield 1% in 2021.

To General Motors, what are you waiting for? Please go ahead to reinstate the much-waited dividends NOW.

References and Credits

1. All financial information in this article was obtained and referenced from GM’s annual and quarterly filings which are available in GM Shareholder Information.

2. Featured images in this article are used under creative commons licenses and sourced from the following websites: GMC.

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Disclosure

The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.

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