GMC 2020 Terrain SUV. Source: www.gmc.com
General Motors (NYSE:GM) has been a cash-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 cash dividends since 2Q 2020.
Apart from the dividend suspension, GM also has temporarily halted its share buyback program due primarily to the excessive debt taken during the COVID crisis.
Fortunately, GM’s business outlook recovered greatly from the COVID crisis in 2022.
Therefore, the company reinstated both the cash dividend and share buyback in the same year.
While GM has since been resuming its cash dividends, it may not necessarily be a good and safe one.
There are many factors that can affect GM’s capability of paying a cash dividend.
In this article, we will cover some of the factors that support a dividend from GM and we also look at factors that do not support a dividend from the company.
That said, let’s start with the topics below!
General Motors’ Cash Dividend Topics
Factors That Support A Dividend
P1. Growing Vehicle ASP
P2. A Durable North America Operation
P3. A Profitable GM Financial
P4. Stable Profitability And Cash Flow
P5. Low Debt Level And Leverage
Factors That Do Not Support A Dividend
C1. An Unreliable Dividend History
C2. Declining Vehicle Wholesale
C3. An Unprofitable International Operation
C4. Money-Draining Cruise
C5. Declining Market Share In China
Summary And Reference
S1. Summary
S2. References and Credits
S3. Disclosure
Growing Vehicle ASP
GM Vehicle Average Selling Price
The first factor that supports a cash dividend coming from General Motors would be the increasing vehicle average selling price (ASP).
As seen in the chart above, GM’s vehicle ASP has been on the rise since 2016 and reached a record high of $40,000 per vehicle as of 2022.
Since 2016, GM’s vehicle ASP has increased by roughly 60% or 10% per year on average over the last 7 years.
This factor is extremely important as the growing vehicle ASP not only puts more money into GM’s coffers but also shows that the company has the competitive advantage or moat to raise prices.
Despite the growing vehicle ASP, GM’s market share has remained relatively unchanged over the years as depicted in this article – GM’s Market Share In The U.S.
While GM’s vehicle prices have been on a rise, people are still sticking with GM’s products as reflected in the stable market share.
Therefore, GM’s rising average selling price is done not at the expense of sacrificing its market share but due primarily to the fact that it is capable of doing so.
As GM has been able to grow its vehicle ASP all these years, it has been able to maintain its margins and thereby, its profitability.
In other words, GM’s ability to pay cash dividends consistently all these years comes primarily from the growing vehicle ASP.
More importantly, GM’s growing ASP will likely continue into the future given its strong brand power and its competitive position in the automotive industry.
A Durable North America Operation
GM North America Profit And Margin
* North American Revenue and EBIT-adjusted are obtained from GM’s annual reports.
* EBIT stands for earnings before interest and taxes.
* Adjusted EBIT is a measurement done by GM to exclude non-recurring and non-core items such as special or one-time income or expenses to reflect the true nature of its core operation.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.
GM’s North America operation includes primarily the results from the U.S.
As seen in the chart above, GM’s North America operation has been a highly profitable one, with the adjusted EBIT averaging around $10 billion since 2016.
In terms of margin, GM’s North America EBIT-adjusted margin came in at 10% on average in the last 7 years, illustrating the highly profitable nature of the North American market.
More importantly, GM North America went through the COVID-19 crisis with minimal impact as reflected in the marginal dip in revenue and profitability between 2019 and 2020.
In the post-COVID period, the revenue and profitability of GM North America recovered quickly and margins were seen returning to pre-COVID figures, illustrating the durability of GM’s North American automotive business.
As of 2022, GM North America was seen earning a record high of revenue and EBIT-adjusted which came in at $128 billion and $13 billion, respectively.
Again, GM has a highly durable North American business that generates a consistent amount of cash and profit.
In return, the continuous streams of cash and profit generated have enabled GM to consistently pay cash dividends and execute share buybacks.
A Profitable GM Financial
GM Financial Profit And Margin
* GM Financial’s EBT, EBT margin, and cash dividends paid to automotive are obtained from GM’s annual reports
* EBT stands for earnings before taxes as interest is part of the operating item of GM Financial.
* Adjusted EBT is a measurement done by GM to exclude non-recurring and non-core items such as special or one-time income or expenses to reflect the true nature of its core operation.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.
GM Financial is one of GM’s wholly-owned subsidiaries and is responsible for the financial side of the business.
As such, GM Financial gives out loans and credits to not only retail customers but also dealers.
That said, GM Financial is an even more profitable business segment compared to the automotive.
As shown in the chart above, GM Financial has been not only a profitable subsidiary but also one with a growing margin that tops above 30%.
As seen, GM Financial’s EBT-adjusted has been on a rise, topping record highs since 2021 while the respective margin also exceeded 30% in the same period.
As the profitability of GM Financial has been on the rise, the subsidiary has returned some of the profit earned through cash dividends to its parent company, Automotive.
In line with the rising profitability, GM Financial’s cash dividend to Automotive also has been on a rise, topping record highs of $3.5 billion and $1.7 billion in 2021 and 2022, respectively.
For your information, these cash dividends actually go into the operating cash flow of GM.
And, GM pays its cash dividends to shareholders from the cash generated through its operations.
Therefore, GM Financial has indirectly contributed to the capital that has been returned to shareholders.
In short, a profitable GM Financial is definitely a plus for shareholders as it helps contribute cash that has been returned to shareholders in the form of dividends and share buybacks.
Stable Profitability And Cash Flow
GM Free Cash Flow And Net Earnings
* Adjusted automotive free cash flow and net earnings are obtained from GM’s annual reports
* Adjusted net earnings are calculated after accounting for taxes and automotive interest expenses.
* Adjusted automotive free cash flow and adjusted net earnings are a measurement done by GM to exclude non-recurring and non-core items such as special or one-time income or expenses to reflect the true nature of its core operation.
* Free cash flow is the difference between net cash from operating activities and capital expenditures.
* Projected 2023 financial results are obtained from GM’s 4Q 2022 earnings release.
* GM’s fiscal year begins on Jan 1 and ends on Dec 31.
On a consolidated basis, GM also has been making billions in net profit and generating tonnes of free cash flow as shown in the chart above.
While the automotive free cash flow dived during the COVID-19 crisis, it quickly recovered in post-pandemic periods and topped at a massive $10.5 billion as of 2022.
On the other hand, GM’s adjusted net earnings have been even better and clocked more than $10 billion since 2021.
While the automotive free cash flow declined significantly between 2019 and 2021, its adjusted net earnings still reached more than $6 billion and even soared to $10.6 billion in 2021, underscoring the resilience of GM’s businesses to COVID disruptions.
Moreover, the year 2022 was plagued with supply chain issues but GM still managed to generate more than $10 billion in adjusted automotive free cash flow and net earnings, another example that shows the durability of GM’s businesses.
Therefore, GM has been able to make consistent money irrespective of the COVID-19 crisis or supply chain issues.
Far from over, GM expects the 2023 outlook to be on the bright side, with an adjusted automotive free cash flow that tops $6 billion on average while the adjusted net earnings may reach $8.5 billion on average.
These are incredible milestones that GM is working hard to achieve in 2023.
Again, GM’s consistent streams of automotive free cash flow and net earnings have enabled the company to continuously return capital to shareholders.
Low Debt Level And Leverage
GM Debt Level And Leverage
Apart from being profitable and cash flow positive, General Motors also has been low in debt and leverage.
While GM’s automotive debt has been on a steady rise since 2016, its leverage has remained relatively unchanged and even declined in recent years.
For example, GM’s automotive debt-to-equity ratio of 25.6% and 24.8% recorded in 2021 and 2022, respectively, were at record lows in the last 7 years.
Also, GM’s automotive debt-to-asset ratio has been relatively stable in post-pandemic periods and was even slightly lower than the figure recorded in 2020.
Nevertheless, GM is indeed low in debt leverage with a debt-to-asset ratio that came in at only 7% in 2022.
As GM has been relatively low in debt, its interest expense also has been quite steady and the coverage ratio also has been on a rise during the post-pandemic period, according to this article – GM Interest Expense Coverage Ratio.
Therefore, there is minimal risk associated with GM’s debt.
In short, there is no reason for GM’s shareholders to be concerned with the impact of debt on the company’s ability to declare cash dividends and execute share buybacks.
An Unreliable Dividend History
GM Dividends Declared Per Share
While GM has been making billions in profit and free cash flow in the post-pandemic period, its dividend payments have not been very shareholder-friendly.
As shown in the chart above, GM’s dividend payments were nearly decimated since 2020 when the COVID-19 pandemic started.
In 2021, GM’s cash dividend was nil, and the company has only reinstated the dividend in 2022.
Despite the lifting of the dividend suspension, the rate was not even half of what it used to be.
As seen, GM’s dividend rate was only a mere $0.18 per share in 2022 and $0.09 per share year to date in 2023.
GM’s Board Of Directors may have been too cautious when it comes to capital return to shareholders.
Moreover, the dividend suspension may also indicate that perhaps, GM’s business models may not be as durable as investors have expected and are susceptible to a black-swan event like the COVID-19 pandemic.
Unlike Altria and Philip Morris International whose dividend rates were even raised during the pandemic, GM has a history of dividend suspension and would not hesitate to cut the rate down to zero in a period of crisis.
Therefore, dividend investors who rely on a continuous stream of cash should beware of General Motors.
Declining Vehicle Wholesale
GM Vehicle Wholesale Numbers
Another factor that may affect GM’s ability to consistently pay cash dividends in the future would be the declining vehicle wholesale.
As seen in the chart above, GM’s vehicle wholesale has been on a decline since 2016 and reached only 3.6 million vehicles as of 2022.
Despite the significant rebound of vehicle wholesale in 2022, the figure was only about 60% of that reported in 2016.
The declining trend may not be a problem if the vehicle’s average selling price (ASP), which we saw in earlier discussions, can be on the rise indefinitely.
However, at the end of the day, it is still the number of vehicles delivered that counts because the vehicle ASP may only rise to a certain number before a possible backlash by customers.
Therefore, GM must strive hard to increase the vehicle sales figure.
If this number continues to decline, GM would be in trouble as profitability and cash flow would certainly be affected and your cash dividends would probably be gone too.
In short, dividend investors should watch for GM’s vehicle wholesale numbers from time to time.
An Unprofitable International Operation
GM International Revenue And Profitability
* Adjusted EBIT is a measurement done by GM to exclude non-recurring and non-core items such as special or one-time income or expenses to reflect the true nature of its core operation.
While GM North America is a profitable venture, it is the opposite of its international counterpart.
As seen in the chart above, GM International or GMI has been an unprofitable venture all these years.
Despite making tens of billions in revenue, GMI gets nothing from the sales and even loses money.
Since 2016, GMI’s EBIT-adjusted has been in the red, illustrating the huge losses that GM has been incurring in its oversea markets.
The worse thing is that GM has only managed to generate a positive adjusted EBIT in only 1 out of the last 7 years.
GM may have been subsidizing the losses of its international operations with profit generated from North America and this practice could possibly eat into the cash and profit used for capital returns.
That probably explains the stagnant cash dividends all these years.
Therefore, the losses in its international operations do not look good and may possibly affect the company’s ability to pay cash dividends if the losses continue into the foreseeable future.
The good news is that GMI has finally made a profit in 2022 when the adjusted EBIT totaled nearly $500 million USD.
The bad news is that this may only be a one-time event given the lousy historical results.
Therefore, dividend investors must watch for this segment from time to time to make sure that the losses do not get out of hand until the company-wide profit and cash flow are affected too
Money-Draining Cruise
Cruise Revenue And Profitability
* Adjusted EBIT is a measurement done by GM to exclude non-recurring and non-core items such as special or one-time income or expenses to reflect the true nature of its core operation.
Cruise is one of GM’s wholly-owned subsidiaries responsible for the development and commercialization of autonomous vehicle technology in the U.S. and globally.
Similar to GM International, Cruise is also another segment that has been incurring huge losses with little to no revenue.
As shown in the chart above, Cruise has only managed to earn $100 million in sales in 2022 and this figure has remained the same in the last 4 years.
While Cruis’s revenue has not been in progress meaningfully, its losses have been getting worse.
As seen in the chart above, Cruise’s EBIT-adjusted came in at a massive -$1.9 billion, the largest loss ever reported in the last 7 years.
Since 2016, Cruis has lost $6.5 billion cumulatively in EBIT-adjusted, driven primarily by the growing development costs in AV technology, according to GM.
Similarly, GM may have been using the cash and profit generated from its profitable North American operation to subsidize the losses incurred in Cruise.
And, that might explain the stagnant cash dividends all these years.
The bad news is that Cruise’s losses will certainly continue into the foreseeable future and no one, not even GM itself, knows when Cruise can finally turn a profit.
The latest progress in Cruise was that it was still gated by safety and regulation, according to the 2022 Annual Report.
Again, investors should watch the losses in Cruise from time to time to ensure that they do not get out of hand.
Declining Market Share In China
GM China Vehicle Sales And Market Share
China is an important market for General Motors as it is the world’s biggest automotive market.
Other than being the world’s largest automobile market, China also is a lucrative market for GM.
Therefore, GM must strive to maintain its competitive position in the Chinese market no matter what.
Unfortunately, the chart above shows that GM’s competitive position in China has been on a decline as reflected in both the shrinking vehicle sales and market share numbers.
Since 2014, GM’s China market share has declined by nearly 5 ppts, plummeting from 14.8% reported in 2014 to only 9.8% as of 2022.
The same trend applies to GM’s vehicle sales in China whose numbers have declined by 35% since 2014 or a massive 43% from 2017 when it was at its peak.
What follows from the lowering competitive position in China is a decline in profitability.
As seen in the following table, GM’s Automotive China equity income has shrunk more than 50% since 2014 and reached as low as $677 million as of 2022.
GM’s Automotive China Equity Income As At The End Of The Financial Year
| As at 31 December | Equity Income From China |
|---|---|
| (US$ Millions) | |
| 2014 | $2,066 |
| 2015 | $2,057 |
| 2016 | $1,973 |
| 2017 | $1,976 |
| 2018 | $1,981 |
| 2019 | $1,132 |
| 2020 | $512 |
| 2021 | $1,098 |
| 2022 | $677 |
Mind you, the equity income produced by GM’s Automotive China JV is an important source of profit as it helps to patch the losses incurred in its International operation.
Without this source of equity income from China, GM International’s losses would be deeper, one that we saw in prior discussions.
Therefore, GM should strive to at least maintain, if not grow its competitive position in China.
If GM’s vehicle sales and market share in China continue to slide, GM may have to exit the Chinese market as it may no longer be profitable to operate in China.
GM’s exit from China could have severe implications for the future development of the company, and this can include downsizing its capital return to investors in the long run.
Therefore, dividend investors should keep an eye on the results of GM’s Automotive China from time to time.
Conclusion
There are 5 supporting factors that say GM is a good and safe dividend stock.
On the other hand, there are also 5 opposing factors that say GM is not a good and safe dividend stock.
What do you think?
Please leave your comments below.
References and Credits
1. All financial figures in this article were 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.
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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