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US Auto Giant General Motors NYSE: GM Recently, headlines with an announcement of a new ransom of shares of $ 6 billion were announced. This step continues the aggressive efforts of the company to reduce its outstanding amount of share. But what is the reason for the decision of the GM to allocate such a large amount for redemption of its own shares?

What is even more important, does this last GM ransom make a more invested action? Let’s analyze the announcement and discuss what all this means for investors.

Destruction of a large announcement of GM ransom

There were several important details in the GM announcement. The company will quickly earn these ransom in the amount of $ 2 billion using an accelerated ransom program (ASR). Through ASR, companies work with investment banks to quickly redeem many shares. The result is that the company can immediately reduce the number of shares by increasing the profit per share (EPS).

Ultimately, the company pays the bank higher fees for the speed of ransom. There is also a risk that shares can fall over the next few months, which means that the company could buy more shares if it had expected. GM, perhaps, sees his shares as significantly underestimated at this stage, that is, he is ready to prioritize in this transaction. It is expected that ASR will be finished somewhere in the 2nd quarter.

It is also important to understand how much the company plans to spend on ransom in relation to the cost of the company. With a new purchase plan, the company now has 6.3 billion dollars. USA in the form of ransom. This is more than 13% of the GM market capitalization of 48 billion US dollars as of the closure of February 26.

This is a very significant amount. It is important to note that this new redemption program, although significant, is still less than the cost of ransom of the company over the recent past. Since the beginning of 2024, GM spent more than $ 7 billion on a ransom. During this time, the company’s shares estimated more than 35%.

Nevertheless, this, of course, is not all out of the ransom. During this period, the company has significantly defeated the estimates of income and income every quarter. In general, these lower numbers suggest that a new redemption plan will have a smaller effect than the previous one. This is especially true, given the significant growth of shares.

Nevertheless, on the day of this press release, GM shares estimated almost 4%, showing that the markets support this step. This growth is similar to 4% of the shares that the company could redeem from ASR based on the price of shares the day before the announcement. This suggests that the ASR effect can already be largely evaluated.

Assessment of GM dividends increase

Another factor affecting the growth of GM shares is an announcement of a significant increase in the dividends of the company. Its dividends will grow by 25% to 0.15 dollars per share. This gives shares the specified dividend yield of just over 1.2%. This corresponds to the dividend yield of the S&P 500 index. The absolute quarterly payment is now equal to the payment of the opponent Ford Motor NYSE: F.Nevertheless, the field is still maintaining a huge advantage in this metric with a specified output by almost 8%. His other rival of a large three, Stellantis NYSE: StressIt boasts with a yield of 9.2%.

Nevertheless, this is largely because GM decides to return capital to shareholders through a ransom for dividends. The combination of dividends and the redemption of GM over the past 12 months is more than 15%. This is below 21%Stellantis, but above 9%of Ford.

GM ransom: confirms the a priori bulls, but small changes for the sitters of the fence

The new GM redemption program does not greatly change the calculation when considering investments in this name. This is because it does not provide a significant change from the point of view of GM redemption. Nevertheless, this shows the constant commitment of this strategy and should help maintain the price of shares. It also shows constant confidence from the management team, which is a good sign for those who have already liked this company.

GM shares will continue to be traded mainly on the basis of income and news of tariffs regarding Canada and Mexico. A large number of its production occurs in these countries. In 2024, GM published an EPS adjusted to the diluted record.

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