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GM said planning buyback
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January 24, 1997: 10:41 a.m. ET
The car giant will reportedly announce a stock buyback and dividend hike
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NEW YORK (CNNfn) -- General Motors' board of directors will gather on Monday to discuss increasing its dragging dividend and commencing an enormous stock-buyback program, The Wall Street Journal reported.
With such actions, the nation's No. 1 automaker would finally close its early 1990s chapter of financial difficulty, when it was forced to slice its dividend dramatically and issue $2 billion in stock just to keep its corporate head above water.
By the end of the third quarter, GM had accumulated $14.5 billion in cash reserves, sustained by a strong economy and increasing profitability. Furthermore, now that the company has addressed pending business issues like labor contracts and the sale of its Hughes defense unit, GM is able to turn its full concentration to enhancing company stock value and the interests of its stockholders.
In fact, so many Wall Street analysts have been anticipating Monday's expected stock buyback and dividend hike, the paper said, that the stock price will likely drop if the moves don't occur.
Ron Glantz, an analyst at Dean Witter told The Journal, "I'd be flabbergasted if GM doesn't announce both." He is predicting a $3 billion buyback program, which -- at its current stock price -- would account for a 6 percent reduction in the company's outstanding shares.
Most analysts estimate that GM will set its quarterly dividend at 50 cents per share, an increase of 10 cents per share.
David Bradley of J.P. Morgan believes a 60- cent dividend -- a 20-cent hike -- is more likely. "This is a company whose cash balance will have gone from $9 billion to $16 billion in one year," he told the paper.
Despite the fact that a 10-cent increase would still leave GM's dividend far lower than that of competitors Ford Motor Co. and Chrysler Co., it would still be a far cry better than the divided of 20 cents per share that GM was forced to enact in the early 1990s.
GM officials wouldn't comment specifically on the potential moves, but did mention that a dividend increase, should it occur, would only be to a level sustainable during a downturn.
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