Novice Investing - General Motor Cut Dividend

Date: Monday 01st 2008f December 2008 04:02:55 PM

General Motor Cut Dividend - 02/07/2006

By: Novice Investing Staff

In a widely expected move, General Motor Corporation (GM) cut its quarterly dividend to $ 0.25 per share from $ 0.50 per share previously. At a recent price of $ 23.22 per share, the new dividend initiative will yield 4.3 %, which is still high for a big capitalization company. The move will saves GM $ 565 Million annually.

In addition, GM also announced pay cut for key management which includes CEO Rick Wagoner, Vice Chairman John Devine, Bob Lutz, Fritz Henderson and Executive Vice President Thomas Gottschalk. The pay cut range from 10 to 50 percent. Not satisfied, the company also announced that it will cap health care contributions to retiree hired after 1993. That further cuts annual health care expense by $ 900 Million.

Will there be more cuts coming? We believe so. There are still expenses to cut when you think of a company that has a revenue in the hundred of billions and yet fail to make any profit in all of 2005. General Motor's cost structure is still higher than that of Toyota, its stiffest competitor. Cost per vehicle is also higher by more than one thousand dollars for GM. So, more trimming should be expected.

This cut may be influenced by GM's largest shareholder, Kirk Kerkorian. With a 9.9% stake, he has landed his top aide, Jerome York, at one of General Motor's board of director a day earlier. At recent stock price, Kirk's stake is worth $ 1.31 Billion. Therefore, he will make sure that GM do its best to fight cost before it gets any worse. His toughest task will be to convince the United Auto Workers to agree for a deeper cut. If the cut can give GM equal footing to competitors, GM's share price will have further to rise. To give you an idea, currently, GM is valued at less than 10 % the market capitalization of Toyota. For a speculative investor, you can bet your money on Kirk.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding General Motors Corp. (GM) or any other securities.

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