Dividend Ten

Freelance & personal finance journal

Recent Buy

Recent Buys – GM, F

Artist rendering of me concocting a mater plan

On 8/26 I purchased 100 shares of GM at $31.54 for a total price of $3,162.62. I also bought 200 shares of F at $12.35 for a total price of $2,479.93.

Honestly, I couldn’t decide which was the better deal between GM and F, so I decided to split the difference. Looking at just the numbers – GM seems to be a more efficient operator on the basis that its profit margin in North America is nearly a full percentage point higher than Ford. However, despite being somewhat nebulous at this point I am excited about some of the news Ford has put out recently around targeting a fully autonomous vehicle by 2021. I am currently building my portfolio around this meaningful trend, and placing bets on all the different players that have a chance to win in this space.

While fully aware of the risks of adding a capital-intensive, cyclical automaker with meaningful financial leverage so late into the economic recovery and in light of global risks, the valuation of these companies is too compelling to pass up.

GM is leaner now than it was pre-bankruptcy, and while it retains financial risk with GM Financial and holds an underfunded US pension plan of ~$10.4 billion, the company is on track yet again for another solid year of auto operating cash flow generation and free cash flow generation. Whether applying a GAAP or non-GAAP approach, GM is trading at an incredibly attractive forward P/E ratio; after raising its full year adjusted-diluted earnings per share guidance to $5.50-$6.00, the firm is now trading at 5+ times full year 2016 earnings per share guidance. The intrinsic value of the shares are around $43 each, though upside to this fair value estimate is a very real possibility. The kicker is GM’s near-5% dividend yield, which remains easily covered by the company’s GAAP annualized free cash flow. Average free cash flow generation during the past three years (2013-2015) of ~$4 billion is far in excess of GM’s yearly run-rate cash dividend obligations of ~$2.24 billion (or 2015’s mark).

GM certainly has a checkered past, of course, and while it’s not possible to state that the current level of dividend payments are completely safe over the long term due to its cyclical and capital-intensive business model, which magnifies pain during economic downturns, there aren’t any immediate threats to the payout in the near term (its second quarter was solid). In fact, its financials look surprisingly good.

At a $0.38 quarterly payout GM will add $152 to my forward income. At a $0.15 quarterly payout, F will add $120 to my forward income, combined for a total of $272 dividend income.

Thanks for stopping by!

 

10 Comments

  1. I don’t think you can go wrong with either Gm or Ford. I think TESLA is way too expensive and both these American Icons should be around for years. Nice buy

    • Greg Gee

      Thanks so much. Yes, I actually love the growth stocks as well and think Musk is the rarest kind of visionary and it is a visionary company but not personally a fan of TSLA for a number of other reasons. GM & F have some risk but the valuations are very compelling given the market right now.

  2. Good buys and lots of future dividends I have bought a little bit of ford wich most I will see like yours in Dec

    • Greg Gee

      Cool, yes! It is an attractive valuation and nice yield. Thanks for sharing!

  3. I own Ford but not GM. I prefer Ford, because they didn’t accept bailout money during the great recession (just loan guarantees). Like you, I also like that Ford seems to be going all out in the autonomous vehicle space.

    Happy investing!

    • Greg Gee

      Yes, I certainly had a hard time choosing between them. The autonomous vehicle plans are very cool, if a bit nebulous at this point.

  4. I don’t own either company and don’t plan to for my long term portfolio. At least you split the difference and diversified among two major auto plays. It’s just an industry that has too many unanswered long term questions for me as the business is increasingly mirroring the tech space rather than the traditional auto sector. Thanks for sharing.

    • Greg Gee

      Yes, I agree on the tech, which I personally do like. Thanks for sharing your thoughts as well!

  5. Been adding and keeping an eye on these two for most of the year, trading super cheap and with high yields.

    • Greg Gee

      Hell yea, not many times you get a value like this in this market and I feel like much of the peak auto is already baked into the price.

Leave a Reply

CommentLuv badge

Theme by Anders Norén