Big Dividends? Yes -- but General Motors' CEO Sees Growth, Too

Under CEO Mary Barra, General Motors' fundamentals are in great shape -- and, she says, GM is poised for earnings growth and high-tech leadership. Image source: General Motors.

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It's no secret that the auto business is headed for some radical changes driven by new technologies. Those changes will hurt many of the big automakers we've known for the last century. But there will be a few old-school automakers that won't just survive, they'll thrive in the new high-tech self-driving world.

Which ones? This might surprise you, but CEO Mary Barra has General Motors (NYSE: GM) better positioned than most investors realize to not only survive, but to grow significantly as the new high-tech world unfolds.

GM also pays a great dividend, with a yield around 4.8% at recent prices. Right now, those prices are surprisingly low -- especially if, as Barra maintains, GM turns out to be an earnings-growth story too.

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Barra: GM offers investors both growth and a dividend

During GM's second-quarter earnings call, Barra was asked whether she thought potential investors should view GM as a dividend stock or as a potential earnings growth story. She responded:

I really think it's both. I think when you look at our core business that we continue to invest in, the fundamentals of having great cars, trucks, and crossovers that customers are signaling they want to buy, we're segment leading, winning a lot of awards. We're continuing to look at -- how do we capitalize on adjacency, on connectivity, on GM Financial. So we're strengthening the core businesses, and growing by using adjacencies and also in some other key markets.

And then on top of that, we're being very selective in those estimates we're making, so that we can take and build on the expertise that's fundamental in this company of integrating technology into vehicles and putting them out on the roads. That potentially has the opportunity to dramatically change the current business -- from an earnings perspective -- with what that new business is worth. So we are working on both. I would be very happy if people thought of us as delivering and doing both.

Is Barra right? Is GM poised to deliver growth as well as dividends, even as the auto industry undergoes a high-tech transformation?

I think she has a good case. Here's why.

GM is emerging as a tech powerhouse

Under Barra, GM has become a steadily profitable global auto giant with a rock-solid balance sheet. But it's more than that: GM is aggressively (and credibly) pursuing leadership in the emerging technologies that could turn the industry on its head.

Ride-hailing? GM owns a big stake in Lyftaffordable ratesfast-growing rival to ZipCar

Self-driving cars? It's believed that GM's technology just took a big leap forward with its acquisition of San Francisco start-up Cruise Automation -- a big enough leap that GM and Lyft say they'll roll out a pilot self-driving taxi service

Electric cars? Tesla Motors has promised that its $35,000 Model 3

GM is gearing up to begin production of the electric Chevrolet Bolt in the fourth quarter. Image source: General Motors.

By the way, GM has said that the Bolt was designed from the start to be a platform for all sorts of future technologies, including self-driving systems. It's expected to be the vehicle that GM will use in the upcoming pilot program with Lyft.

The takeaway: More than just about any other major automaker, GM is establishing a leadership position in the emerging technologies that will transform its business.

GM's "legacy" business is also in great shape

The new technology is exciting, but GM's current business is also in great shape. Quality is way up, profit margins have been exceptionally strong

Aside from the 2014 earnings dip related to the recall mess, GM's quarterly pre-tax profit margin has been trending upward for several years. Last quarter's was a record. Data source: General Motors.

What's more, GM is actually positioned to grow, even aside from the technological revolution that might be coming: Those margins are likely to get even stronger over the next several years, as the company continues to execute on several initiatives intended to boost profits significantlyhigh-profit Cadillac luxury brand

So why is GM cheap right now?

Simply put, GM is cheap right now because investors are worried that the U.S. new-car market might be at or near its cyclical peak

Right now, big sales of trucks and SUVs are powering strong profits for GM. High-trim models like this GMC Sierra Denali are exceptionally profitable -- and selling well. Image source: General Motors.

The concerns about the U.S. market are well-founded: Sooner or later, the U.S. will slide into a recession. But that's a short-term story. As a GM investor, I'm not too worried about it, not least because CFO Chuck Stevens thinks GM will be able to sustain its dividend payments

The upshot: A patient investor could find a lot to like with GM

It's not often that you can point to a century-old industrial company and say there might be an earnings-growth story unfolding. But here it, and it's trading at a dirt-cheap valuation -- especially when you consider the dividend.

An investment in GM will require patience. It's not for someone looking for a quick ten-bagger. It could be five to seven years, maybe more, before this story fully unfolds. But if you buy at current prices, reinvest that dividend, and resist the temptation to sell when the market hits bumps, you might be very happy with the result in time.

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John Rosevearfree for 30 daysconsidering a diverse range of insightsdisclosure policy