Do GM Stock Buybacks Make the Stock Buyable For Investors?
U.S. auto giant General Motors (NYSE: GM) recently made headlines with the announcement of a new $6 billion share buyback program. This move continues the company’s aggressive efforts to reduce its outstanding share count. But what’s the reasoning behind GM’s decision to allocate such a large sum toward repurchasing its own stock?
More importantly, does this latest buyback make GM a more investable stock? Let's break down the announcement and discuss what it all means for investors.
Breaking Down GM's Big Buyback Announcement
The GM announcement had several important details. The company will quickly make $2 billion worth of these repurchases using an accelerated share repurchase (ASR) program. Through an ASR, companies work with investment banks to quickly buy back lots of shares. The result is that the company can immediately reduce its share count, boosting earnings per share (EPS).
Ultimately, the company pays the bank higher fees for the speed of the repurchase. There is also a risk that shares could drop over the next few months, meaning the company could have bought back more shares if it had waited. GM possibly sees its shares as significantly undervalued at this point, meaning it is willing to prioritize speed in this transaction. The ASR is expected to be finished sometime within Q2.
It is also important to understand how much the company is planning to spend on buybacks in relation to the value of the firm. With the new repurchase plan, the company now has $6.3 billion in buyback capacity. That represents over 13% of GM’s $48 billion market capitalization as of the February 26 close.
That is a very significant amount. It is important to note that this new repurchase program, although significant, is still smaller than the company’s buyback spending over the recent past. Since the beginning of 2024, GM has spent more than $7 billion on buybacks. Over that time, the company’s shares have appreciated by over 35%.
However, this is certainly not all due to buybacks. Over that period, the company has significantly beaten estimates on revenue and earnings every quarter. Overall, these lower numbers suggest the new repurchase plan will have less of an effect than the previous one. This is especially true given the stock’s significant rise in shares.
Still, on the day of this press release, shares of GM appreciated nearly 4%, showing that markets are supportive of the move. This rise is similar to the 4% of shares the company could have bought back with the ASR based on the share price the day before the announcement. This suggests that the effect of the ASR may already be largely priced in.
Assessing GM’s Dividend Boost
Another factor influencing the rise in GM shares is the announcement of a substantial increase in the company’s dividend. Its dividend will rise by 25% to $0.15 per share. This gives the stock an indicated dividend yield of just over 1.2%. That is in line with the dividend yield of the S&P 500 Index. The absolute quarterly payment is now equal to that of rival Ford Motor (NYSE: F). However, Ford still maintains a massive advantage on this metric with an indicated yield of nearly 8%. Its other Big Three rival, Stellantis (NYSE: STLA), boasts a yield of 9.2%.
However, this is largely because GM chooses to return capital to shareholders through buybacks over dividends. The combination of GM’s dividend and buyback yields over the last 12 months is over 15%. This sits below Stellantis’ 21%, but above Ford’s 9%.
GM Buybacks: Confirms the Priors of Bulls, but Little Changes for Fence Sitters
GM's new buyback program doesn’t greatly change the calculus when considering an investment in this name. This is because it doesn’t represent a significant change in terms of GM’s buyback pace. However, it does show a continued commitment to this strategy and should help support the share price. It also shows continued confidence from the management team, which is a good sign for those who were already liking this company.
GM shares will continue to trade largely based on earnings and tariff news relating to Canada and Mexico. A large amount of its production takes place in these countries. GM posted record diluted-adjusted EPS in 2024. Its guidance shows management thinks the company will do so again in 2025.
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