General Motors (NYSE:GM) certainly hasn’t been a darling of the market in 2023. Yet, investors who appreciate generous dividends and share buybacks should definitely put General Motors on their watch lists. Although today’s news isn’t all positive, I am bullish on GM stock and envision a rally into the year’s end.
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General Motors is a Detroit-based manufacturer of vehicles, including both electric and internal combustion engine vehicles. For a while, it was considered safe to invest in General Motors.
However, this year has been tumultuous for General Motors. The company will have to absorb the costs of workers’ strikes, which recently hindered automotive supply chains. Nevertheless, there’s evidence that General Motors is looking toward the future with optimism, and investors might anticipate a powerful comeback for this iconic American automaker.
The Bad News: GM Lowers Its Profit Outlook
It’s no secret that the United Auto Workers (UAW) strike took a major toll on Detroit-based car manufacturers, including General Motors. The strike appears to be resolved now, but the damage has already been done, and General Motors has no choice except to acknowledge the financial impact.
How extensive will the damage be? Consider that General Motors will have to pay substantially higher wages to a broad array of workers. Thus, according to General Motors, the new deals that ended the UAW strikes will cost the company a whopping $9.3 billion.
More specifically, General Motors expects the costs to total $9.3 billion by 2028, or around $575 per manufactured vehicle, based on new agreements with the UAW and Unifor, a Canadian union. This includes $1.3 billion worth of financial impact in 2023 by itself. That’s a whole lot of financial damage, considering the strikes only lasted for slightly more than six weeks.
Consequently, it shouldn’t be too shocking to discover that General Motors is compelled to lower its forward profit guidance. As it turns out, the company just reduced its 2023 guidance for net income attributable to stockholders to $9.1 billion-$9.7 billion. General Motors’ previous guidance called for $9.3 billion-$10.7 billion.
The Good News: GM Bumps Up Rewards to Its Shareholders
It may disappoint some investors to learn that General Motors lowered its full-year profit outlook. However, there’s also some good news to report. In fact, the news is so good that GM stock jumped by more than 10% today.
Apparently, the market wasn’t too alarmed by General Motors’ profit guidance revision. Investors probably expected this to happen sooner or later. What they might not have expected, though, was that General Motors would take strong action to return value to its shareholders.
“Now that we have a ratified contract and a clear path forward that includes greater operating investment efficiencies, we can resume returning capital to shareholders per our plan,” General Motors CEO Mary Barra declared during a conference call. This plan involves two actions that should impress the company’s investors.
First of all, in January, General Motors plans to hike its quarterly dividend by $0.03 or 33.3% to $0.12 per share. At $0.48 per share when annualized and at the current GM share price of roughly $32, General Motors’ forward annual dividend yield (starting in January) would be 1.5%.
Sure, it’s not a gigantic dividend yield. Yet, it’s still a sign that General Motors’ management is confident in the company’s ability to reward its loyal shareholders.
Additionally, General Motors is planning $10 billion worth of share buybacks, which could potentially put a floor on the GM stock price, as corporate stock repurchases reduce the number of publicly available shares.
Is General Motors Stock a Buy, According to Analysts?
On TipRanks, GM comes in as a Moderate Buy based on 11 Buys, five Holds, and one Sell rating assigned by analysts in the past three months. The average General Motors price target is $44.65, implying 41.4% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell GM stock, the most accurate analyst covering the stock (on a one-year timeframe) is Ryan Brinkman of JPMorgan (NYSE:JPM), with an average return of 13.65% per rating and a 62% success rate. Click on the image below to learn more.
Conclusion: Should You Consider General Motors Stock?
Evidently, General Motors’ management has acknowledged the financial impact of the workers’ strikes. There’s no denying that the damage will be considerable.
On the other hand, General Motors must be optimistic about the company’s future prospects, since the automaker plans to hike its dividend and implement share repurchases. Therefore, General Motors could be on the cusp of a long-term recovery, and I would certainly consider GM stock today.
