GM Joins Race to Return Value and Ignite Confidence

General Motors

After several years of rebuilding its financial engine through profitable quarters and the generosity of taxpayers, General Motors announced it will once again pay a quarterly dividend to shareholders.

Late Tuesday, the Detroit-based automaker declared a quarterly dividend of 30 cents per share. The dividend is payable on March 28 to all common stockholders of record as of March 18. This will be General Motors’ first dividend to shareholders since May 2008. Based on the company’s outstanding shares, the payout will cost nearly $1.7 billion per year.

“Our fortress balance sheet, substantial liquidity, consistent earnings, and strong cash flow provide the foundation for an ongoing payout,” explains Dan Ammann, GM President and Chief Financial Officer. “This return to shareholders is consistent with our capital priorities and is an important signal of confidence in our plans for a continuing profitable future.” General Motors has posted 15 consecutive profitable quarters, generating $16.3 billion in adjusted automotive free cash flow.

Cash is plentiful on Wall Street these days. At the end of the third-quarter, cash and short-term investment balances in the S&P 500 (ex-financials) jumped by 18 percent year-over-year to $1.36 trillion, according to FactSet. Furthermore, companies in the S&P 500 generated $351.3 billion in free cash flow during the quarter, which represents the second largest amount in at least a decade. With cash piling up on balance sheets, a record number of companies are returning money to shareholders in the form of dividends.

The number of dividend-payers in the S&P 500 index is at a 17-year high of 417. In fact, cash dividends in the S&P 500 totaled a record $311.8 billion last year, easily beating the $281.5 billion paid out in 2012, according to S&P Dow Jones Indicies. Earlier this month, Ford Motor announced a 25 percent increase in its first-quarter 2014 dividend.

Shares of General Motors jumped more than 3 percent in late Tuesday trading after the dividend announcement. However, as the chart below shows, shares traded lower on Wednesday as investors digest the dividend news and an update to the company’s growth outlook. At current prices, GM has a dividend of about 3 percent.

Screen Shot 2014-01-15 at 10.39.02 AM
Follow Eric on Twitter @Mr_Eric_WSCS