Forget Ford's Lucrative Dividend. GM Has a Different and Perhaps Better Way to Reward Investors.

General Motors (GM) has been making headlines with its aggressive share repurchase program, which has significantly reduced the number of outstanding shares and boosted earnings per share. Since the start of 2023, GM has reduced its shares outstanding by nearly 40%, from around 1.395 billion to 849 million as of the third quarter.

This has led to a surge in the company's stock price, up almost 130% since the beginning of the year, outpacing rivals Ford Motor Company and Stellantis. In a recent move, GM announced a multiyear $20 billion share repurchase authorization. If GM's earnings remain flat and this repurchase authorization is spent at an average of $80 per share, it could reduce the 849 million shares outstanding to a hypothetical 599 million shares.

This hypothetical reduction would increase earnings per share by 41.7%. GM's ability to generate substantial cash flow, primarily from its high-volume sales of full-size trucks and low incentives, has enabled this share buyback program. The company's stock price has been supported by this strategy, despite the potential risks involved.

While GM and Ford are fierce competitors, GM has chosen a different approach to rewarding investors, focusing on share buybacks instead of dividends. Morningstar's calculations show that GM's total yield, including the impact of both buybacks and dividends, is significantly higher than Ford's at 12.59% compared to Ford's 5.7%. Although GM's share buyback program does not guarantee a higher stock price, if the company continues to execute its strategy effectively, it could be a bright future for long-term investors.