How General Motors Plans to Pay Investors Back

By Markets Fool.com

GM CEO Mary Barra unveiled the new Chevy Volt at an event in Detroit last month. Barra is showing a strong commitment to raising GM's share price the old-fashioned way: by improving the automaker's fundamentals. Source: General Motors Company.

Continue Reading Below

General Motors CEO Mary Barra talks a lot about making GM the "most valued automaker."

The company has a long way to go to reach that goal. Its sales are close to those of Toyotaand Volkswagen, but its profits lag far behind both.

Barra and her team have several long-range initiatives under way to boost the General's global profitability. But GM is already taking actions to boost shareholder value, starting with this: a hike in dividends.

A boost in GM's dividend -- and there might be more to come
On the surface, GM had a tough year in 2014. It earned just $4.25 billion before taxes, a sharp drop from the $7.5 billion it earned on the same basis in 2013.

But that drop was due mostly to the costs of GM's massive wave of recalls, which meant a whole lot of one-time (we hope) expenses. Setting aside the recalls, GM had a good year.

Continue Reading Below

That's why Barra and GM's board of directors are willing to raise the company's dividend in 2015. During the company's earnings conference call last week, Barra said that GM intended to increase its dividend to $0.36 per share, a 20% bump, starting in the second quarter.

At current stock prices, a $0.36 quarterly dividend would give GM a dividend yield of very close to 4% -- not too shabby for an automaker, much less one that crashed into bankruptcy court just a few years ago.

But here's what's interesting: Barra hinted that there's more to come.

Boosting shareholder value the old-fashioned way
Here's what Barra said during GM's earnings call this past Wednesday:

As we execute our plans, we are focused on generating the level of earnings, margin and cash flow that will make us the most valued automaker for our owners. Our strategy is also designed to support a strong and growing dividend and consistent with our strong core operating performance, we intend to increase our second quarter common stock dividend by 20% to $0.36 per share.

Think about that. General Motors CEO wants to boost GM's stock price -- not with buybacks and other tricks, but by boosting the company's fundamentals.

Increasing GM's earnings, profit margins, and cash flow means harnessing GM's potential to build a better business.

That's what Barra and her team are trying to do: Investing for growth in China, restructuring in Europe, turning Cadillac into a high-margin global luxury brand, working on advanced technology like mass-market electrics and self-driving cars in order to stay ahead of rivals.

Here is evidence that General Motors has changed in a big way
It all sounds very ordinary -- it's what a CEO should be doing. But this is General Motors, which was profoundly mismanaged for decades. And it's a CEO who has spent her entire career at GM, and was thought by some to be a little too steeped in its old cutlure.

It's just a simple thing, a dividend boost. Fordboosted its dividend, too. But what makes this interesting is the emphasis Barra keeps putting on increasing GM's value by boosting its fundamentals.

That's a huge change for GM, and it's one I think investors should take note of. GM's stock has risen almost 15% in the last three months. Wall Street seems to be catching on to the fact that something very good is happening at old General Motors. It's time Main Street caught on, too.

The article How General Motors Plans to Pay Investors Back originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.