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GM To Reinstate Dividend Soon

Zacks Equity Research

General Motors Company (NYSE:GM) is planning to reinstate a quarterly cash dividend soon, according to Daniel Ammann, the chief financial officer (:CFO). He believes that investors are expecting a dividend from the company, now that it is free from government shareholding and is generating positive cash flows.

The U.S. Department of Treasury completed the divestment of its remaining stake in General Motors in Dec 2013. The department recovered a total of $39 billion out of its bailout loan of $49.5 billion to the automaker following its bankruptcy in 2009. Thus, the Treasury had to incur a loss of $10.5 billion.

General Motors had stopped paying dividends following the recession in 2008. It has more or less recovered from the effect of the recession and bankruptcy and has completed 15 consecutive quarters of profitable operations. The fourth quarter of 2013, whose results are scheduled to be announced before the opening bell on Feb 6, 2014, is expected to be the 16th profitable quarter.

The cash flows of General Motors have also improved. During the third quarter of 2013, the company had a net cash flow of $3.3 billion from automotive operations, up from $3.1 billion in the year-ago period.

The company now intends to build a strong balance sheet that can not only provide ample returns to shareholders, but also endure the impact of any economic weakness.

General Motors’ peer, Ford Motor Co. (NYSE:F), recently increased its dividend for the first quarter of 2014 by 25% to 12.5 cents per share. The new dividend will be paid on Mar 3, 2014 to holders of the outstanding Class B and common stock. The record date for the quarterly dividend is Jan 31, 2014. The increase amounts to a dividend yield of 3.2% per annum, based on the closing share price of $15.84 as of Jan 9, 2014.

General Motors, which carries a Zacks Rank #3 (Hold), is one of the largest automobile producers in the world along with Ford, Honda Motor Co., Ltd. (NYSE:HMC) and Toyota Motor Corporation (NYSE:TM).

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