Wednesday, July 8, 2015

Stock Purchase --- GM




Today I added shares to my GM position.

  • 100 shares @ $31.33 --- Yield  4.60%

Total capital invested is $3139.95 which will increase my yearly dividends by $144.00.


Well here I go again chasing another ugly duckling. I know this company is probably not on anyone's radar, therefore it is smack dab in the middle of mine. :-)

GM's original IPO price was $35 way back in 2010. It has gone from paying no dividend to a $.30 quarterly dividend. Earlier this year GM raised its dividend 20% making its new quarterly dividend $.36.

Last year it had a seemingly endless list of recalls that resulted in many deaths and impacted around 20 million vehicles.

DEFY MEDIOCRITY

10 comments:

  1. MDP,

    Gutsy purchase :) GM has been on my radar since it's last dance around $30 a share. It seems riskier than other options given the volatility of car sales and risks, such as recalls, but those risks also present opportunity.

    I'm staying on the fence -- for now, anyway -- but still awesome that you added nearly $150 of annual income with the purchase!

    Best,
    DWC

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    1. DWC,

      Gutsy may be a euphemism for stupid! :-) I originally bought shares right after last year's recalls when the price fell from $40 to around $30. The company rebounded nicely and has said it is committed to returning capital via dividends to the shareholders. Time will tell.

      There have been many times when I have told myself set Sharebuilder automatic purchases to add JNJ, KO, PG, WMT and XOM. Don't ever change the choices. Do this for 5 years and be a happy camper. Every once in while I will make safe purchase like this, but not often enough.

      MDP

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  2. I think this is a safer purchase than what you might think. This new-GM is no longer a health care/pension company that also happened to make cars like the old-GM, its now a true manufacturer first with a growing customer base (for example: Total GM China sales for all brands was up 5.1% for the year in the first 5 months per Cadillac's press releases...even with China's Stock Market Issues I can't see them falling off a cliff anytime soon!) .

    Enjoy the blog MDP!

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    1. Anon,

      Thanks for the input! You are correct about GM being much leaner and meaner than ten years ago. I think GM's recent decline in price is a by-product of China. At 4.6% yield I believe this to be a pretty solid value even though there could be more turbulence ahead.

      MDP

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  3. Nice purchase MDP. I hold Ford and have been looking to see if I want to add GM to my portfolio. Between the two, how do you see the stocks playing out in the next few years?

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    1. DGJ,

      I favor GM right now. Time will tell but I think the products are superior and they are more deeply entrenched in China.

      MDP

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  4. MDP,
    You lost me with this one. In very rare cases do I simply not believe consensus EPS estimates, but GM is one of those. EPS is slated to rise by 50% over the next 3 years to $6.50/share in 2018. I see that as a bridge too far. You're talking about a company that will likely be dealing with outsized recall and litigation costs for many years to come, in an industry highly dependent on a growing economy with wage growth--two things that I'm skeptical we'll see in a macro sense.

    Good luck with this one. The yield is pretty sweet, though. What kind of dividend growth are you hoping for?

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    1. Retire 29,

      Considering GM just started paying a dividend again last year, I can't say for certain. Like many deep cyclical industries GM's payout ratio could fluctuate from 20% of earnings to 120% of earnings very quickly.

      While there are many uncertainties with GM, I actually think that if oil prices continue to stay low or even drop further, Trucks and SUVs will continue to surge and that mean $$$$$. Also activist investors are all over GM to continue increasing dividends.

      My current basis is about $32 so my YOC is 4.5%. If I can get 5% long term growth that would be fantastic!

      Also don't underestimate GMs progress in China. That can be a huge wild card going forward. I like the prospects.

      MDP

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  5. I agree with a lot of your investments, particularly the ones in the big oil companies. However, U.S. auto manufacturers have been such poor investments over the past 20+ years that I could never bring myself to invest in them now. If you had bought in 2010, you would be sitting on a loss even accounting for the reinvestment of dividends.

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    Replies
    1. Jim,

      Yes buying them in 2010 would not be good. I'm glad I have bought them more recently. :-) With that said GE was trading at $60 in 2000, Intel at $70 in 2000, and MSFT over $100 in 2000 and I believe KO was around $40 right where it is today. Those companies are pretty blue. Even the bluest of blue chips can have bad years or even decades.

      MDP

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