General Motors: After Uncle Sam, a Dividend

RBC Capital Market’s Joseph Spak and team expect General Motors to focus on its capital allocation plans now that Uncle Sam is out of the way. They write:

"The company has a lot of options but also ample cash/liquidity ($26.8bn in gross cash, $37.3bn in liquidity), strong expected FCF (may approach $20bn over next 3 years), and could add additional debt to pursue any options. We expect GM to initiate a common dividend in short order. We are modeling a $0.15/share quarterly dividend beginning in 1Q14 (~13% payout, ~1.5% yield). We also believe that GM could announce a multi-year share repurchase program. Given the strong FCF generation, we believe this could amount to at least $1.5bn per year over the next two years. This could be in addition to GM’s
potential to take out the Canadian government stake (which now is worth ~$4.5bn). Later on in the year (4Q14) we expect GM to take out the Series A preferreds. For now, we believe the UAW VEBA (~140mm shares) will remain in the shareholder base but over time they could be bought out as well."

Source: Baron's

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