GM Was Paying Dividends?
GM today announced that they will fire a lot more workers while selling assets and suspending dividends to improve its cash flow. Well, that clearly seems like the right things to do given its dire financial situation.
What amazes me is that GM was actually paying out dividends in the first place. GM has been in a crisis and making losses for several years now, so paying out dividends until now were highly irresponsible. I know there is a case for keeping dividends stable and not cutting them directly when profits fall or disappear temporarily, but given how long GM have been making losses, this decision to suspend dividends should have come a lot sooner. GM management appears to have had until now the same curious definition of "temporary" as the ECB board.
What amazes me is that GM was actually paying out dividends in the first place. GM has been in a crisis and making losses for several years now, so paying out dividends until now were highly irresponsible. I know there is a case for keeping dividends stable and not cutting them directly when profits fall or disappear temporarily, but given how long GM have been making losses, this decision to suspend dividends should have come a lot sooner. GM management appears to have had until now the same curious definition of "temporary" as the ECB board.
posted by stefankarlsson at 3:07 PM
4 Comments:
I know. I am short AIG and waiting for them to have more write downs that make them violate their dividend convents. Roger Lowensteins book really opened my eyes to GM's problem s with pensions. If you look at a lot of regional banks most have lost so much money that their payout ratio's have gone from less than 20% to 90 plus %. My shorting strategy, has been to find the regional banks that are going to be forced to cut dividends and the major holders of shares are dividend mutual funds, the dividend gets cut and the funds are forced to unload massive positions.
I have read an article somewhere (can't remember where) that if you add up all of GM's debt and pension obligations, the stock should be worth -$35 (that's MINUS) a share, based purely on book value. No reference handy though, so believe me if you will.
BTW, just found this blog! Great work! I have just uprooted from Canada to Sweden, and want to start playing the market again from here. Can your readers / yourself suggest a good online trading company that allows shorting (blankning) and buying options in Sweden as well as the US (and possibly other countries?) Bonus points if it also allows foreign currency trading.
Thanks very much in advance.
holgs, I use interactive brokers, they are very well. I play options but they are a tricky game. Interactive brokers offers everything.
Stefan, you shouldn't be surprised. GM has clearly shown their corporate culture up until now has not been one of taking risks nor embracing change. It's not until now when they're literally facing going out of existence that they've done much of anything in terms of change whether it's been shifting production focus or stock dividends.
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