General Motors (NYSE:GM) has, since its resurrection from the dead, become a rather strong dividend stock.
Investors know FCF and earnings can flip, so while things look like sunshine and lollipops now, that will not always be the case.
Last year’s FCF coverage was under 40%, meaning GM’s payout was squarely within the range I’d characterize as ultra-safe.
I have no business relationship with any company whose stock is mentioned in this article.
This is a key for holders, as GM stock hasn’t moved much in the past couple of years, so the dividend is a huge portion of total returns.
Bearish Thoughts On General Motors’ Shares – General Motors Company (NYSE:GM)
And then in January, we saw auto sales from General Motors (NYSE:GM), Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU) fall despite leaning substantially on incentives.
So what’s an investor in these auto shares to do, especially if you added GM or FCAU shares in early 2016?
And yes, winter storm Stella likely did a number of auto sales in March.
Currently, GM shares are trading at 5.8x 2017 earnings, which are forecasted to fall to $6.02 per share from $6.12 per share in 2016.
Over the last six months, shares of General Motors, Ford, and Fiat Chrysler are up 8 percent, -2.4 percent, and more than 70 percent, respectively.
General Motors: Permanently Cheap – General Motors Company (NYSE:GM)
Forget about the reason why the stock is cheap for a second and let’s just focus on the consequence of being labeled a permanently cheap stock.
Many investors have stuck around with General Motors (NYSE:GM) since it looks like an extremely cheap stock.
I don’t think I need to remind everyone that shareholders of the old General Motors lost everything in the financial crisis.
For a cyclical stock like General Motors, it makes sense to pay out as much as possible through dividends when times are good.
If the management revises its capital return program to favor dividends over share buybacks we may see some shorts covering.