GM to reinstate quarterly dividend and increase share buyback program to $5 billion

DETROIT – General Motors is reinstating a quarterly cash dividend for shareholders that was cut to preserve funds during the early days of the coronavirus pandemic, although it will be at a much lower rate than when it was suspended.

The Detroit automaker on Friday said the GM board of directors authorized a dividend on the company’s outstanding common stock at a rate of 9 cents per share. That’s a roughly 76% reduction from the 38 cents per share when the dividend was suspended in April 2020.

GM also announced it will resume and increase its opportunistic share repurchases to $5 billion of common stock, up from the $3.3 billion previously remaining under the program. It did not specify a timeframe for the repurchases.

Investors have been questioning when GM’s quarterly dividend would be restored, especially after crosstown rival Ford Motor reinstated a quarterly dividend of 10 cents per share for its shareholders in October 2021.

Wall Street responded favorably to the actions, sending shares of the automaker up by as much as 4% to $40.28 a share during trading early Friday morning. The stock remains down about 33% this year.

“We believe investors have been pining for GM to take advantage of their low valuation, so this should be well-received, although we note this is just an authorization of share repurchases (not actual share repurchases or an accelerated buyback, though we do expect GM to take advantage of the authorization),” Joseph Spak said in an investor note Friday.

GM CEO Mary Barra earlier this year said that the company would “consider all opportunities to return excess capital to shareholders,” but that the priority was to accelerate its transformation plans that include investing $35 billion in electric and autonomous vehicles through 2025.

In a release Friday, Barra said progress on “key strategic initiatives has improved our visibility and strengthened confidence in our capacity to fund growth while also returning capital to shareholders.”

The company’s board felt that 9 cents was an “appropriate” dividend as the company continues to invest in its transformation plan, according to GM spokesman Jim Cain.

The first dividend will be paid on Sept. 15 to shareholders of record as of the close of business on Aug. 31, according to the company.

“GM’s consistently strong earnings, margins and cash flow, our investment-grade balance sheet, and the achievement of several significant milestones in our growth strategy enables us to invest aggressively to accelerate our all-electric future while also supporting the return of excess free cash flow to shareholders, aligned with our long-term capital allocation strategy,” GM Chief Financial Officer Paul Jacobson said in a statement.

The actions come as GM continues to deal with supply chain problems, including a shortage of semiconductor chips, and waning investor confidence.

“We view this news favorably as it signals confidence in both the core business and in the success of ongoing EV/AV investments,” Citi analyst Itay Michaeli said in an investor note, reiterating GM as a “top pick.”

– CNBC’s Michael Bloom contributed to this report.