General Motors Buys Back $5 Billion in Own Shares
In March of 2015, General Motors announced that it would be buying back $5 billion USD worth of shares of its own stock. In an effort to avert a conflict with an investor group helmed by Harry Wilson concerning GM’s balance sheet and governance practices (particularly with the hoarding of cash), the company has also issued plans to increase its quarterly dividend by 20% -- returning a total of approximately USD$10 billion to shareholders over the next two years. Harry Wilson has been seeking a seat on GM’s corporate board of directors and has withdrawn his nomination in light of this new capital allocation plan. In addition to raising quarterly dividends from 30 cents a share to 36 cents, the company has also stated it will offer more transparency in its investment proposals, as well as keeping executive compensation more balanced with overall return on investment capital and with shareholder return.
At the close of fiscal year 2014, General Motors maintained approximately USD$25 billion in cash. After implementing the new capital allocation plan, GM will keep USD$20 billion in cash reserves to retain a high investment grade and in the event of economic turbulence. The company also announced its short term financial goals for fiscal year 2016 which includes profitability in Europe, rising margins in China, and an earnings before taxes and interest (EBIT) margin of 10% in North America. GM hopes to reach an overall EBIT margin of 9-10% over the next decade. The announcement led GM shares to rise 3% in the days following the news and the stock has approached a 52 week high.
After emerging from a government-led bankruptcy in 2009, General Motors issued its new IPO in 2010. Although GM’s stock plummeted last year after the company was forced to issue a recall on models with faulty ignition switches dating back to over a decade ago, the company was able to successfully rebound. Additionally, as gas prices continue their decline, analysts anticipate that automobile companies such as General Motors will be able to increase sales, fueling investor confidence in the company.
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