Don’t Miss Out on General Motors Stock
Despite their relatively attractive dividend yields, stocks for automakers like General Motors Company (NYSE:GM) are having a hard time finding an audience.
In fact, the higher their dividend yields, the more skeptical investors become. Quite often, high yields are a sign of trouble. Sometimes a company’s yield goes up simply because investors don’t believe its payout is sustainable.
Is that the case for General Motors stock?
I don’t think so.
For those of you who are still wondering whether General Motors is a company on the verge of collapsing, here’s a fact: since GM stock got relisted on the stock market in 2010, the company has been profitable every single year.
Now GM is the most dominant car company in the entire United States. According to the latest data on auto sales, General Motors was the No. 1 manufacturer in the country in October 2016, selling 258,584 vehicles. This gives the company a market share of 18.8%. The second place finisher, Ford Motor Company (NYSE:F), had a much smaller 13.8% share in the same period. (Source: “Auto Sales,” The Wall Street Journal, November 1, 2016.)
General Motors is not just doing well in the United States. In China, GM and its joint ventures delivered an October record of 345,733 vehicles, representing a 5.7% increase year-over-year. This also helped them reach more than three million deliveries in record time. (Source: “GM Delivers October Record 345,733 Vehicles in China,” General Motors Company, November 4, 2016.)
The company’s financials have been improving as well. In the third quarter of 2016, GM’s net revenue grew 10.3% year-over-year to $42.8 billion.
But the bottom line was the real highlight. For the quarter, General Motors generated a record net income of $2.8 billion, a whopping 104% increase from the year-ago period. (Source: “General Motors Third-Quarter 2016 Earnings,” General Motors Company, last accessed November 11, 2016.)
When a company is doing so well in its business, you would think that investors must be rushing to get in. But that hasn’t really been the case. Other than the recent surge after the results of the U.S. presidential election came out, GM stock’s performance has been rather lackluster. In the past 12 months, it returned a disappointing negative 4.3%.
This means that despite the company’s impressive growth, investors haven’t rewarded General Motors stock with higher valuations. As a matter of fact, GM stock is trading at just 3.89 times its earnings, a very low multiple, even in the auto manufacturing industry.
What this means is that GM stock could offer some serious value. Think about it: when was the last time you saw a solid company trading at less than five times its earnings?
And if you are worried that GM stock might lack some investor appeal, don’t forget that the automaker also pays dividends. With a quarterly dividend rate of $0.38 per share, General Motors stock now has a handsome yield of 4.45%.
Value cannot go unnoticed forever. In fact, General Motors stock is in the portfolio of arguably the world’s greatest value investor, Warren Buffett. By the end of the second quarter, Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B) owned 50 million shares of the automaker, worth more than $1.4 billion at the time. (Source: “Form 13F Information Table,” U.S. Securities and Exchange Commission, last accessed November 11, 2016.)
Note that GM stock is the highest-yielding holding among all the companies in Berkshire’s portfolio.
Of course, with the rise of ride-sharing companies and electric cars, investors are not sure whether this Detroit-based automaker can be a winner in the future.
However, keep in mind that, other than making cars powered by 6.2L V8 gasoline engines, General Motors also makes electric cars. In the first 10 months of this year, the company sold 18,517 units of the “Chevrolet Volt,” which is the second-best-selling electric vehicle in the U.S., only behind Tesla Motors Inc’s (NASDAQ:TSLA) “Model S.” (Source: “Monthly Plug-In Sales Scorecard,” Inside EVs, last accessed November 11, 2016.)
At the same time, don’t forget that General Motors also has a sizable stake in the ride-sharing company Lyft, Inc.
The Bottom Line on GM Stock
General Motors is not the perfect company, but at today’s prices, its value is just too hard to ignore. Moreover, for GM stock to keep rewarding dividend investors, it doesn’t need the approval of “Mr. Market.”