GM stock rises as US government cuts stake; analysts say dividend possible

DETROIT – Shares of General Motors rose to their highest level in almost three years Wednesday after analysts applauded news that the company could be free of U.S. government ownership by the end of the year.

The U.S. Treasury Department, in a monthly report to Congress, said Tuesday that it sold $1.2 billion worth of GM stock in October. The report didn’t say how many shares were sold, but it’s likely that Washington’s stake in of the company now is less than four per cent.

“We believe the exit will be complete by year-end, which, in our view, is a positive catalyst for the stock,” Sterne Agee analyst Michael Ward wrote in a note to investors Wednesday morning.

That could clear a path for GM to start paying dividends or buy back more of its stock, Buckingham Research analyst Joseph Amaturo added in his note to clients.

Meanwhile, there was no word on whether the Canadian and Ontario governments had sold any more of their shares since divesting a block of shares worth about $1.1 billion back in September.

GM shares rose more than four per cent to $38.50 early in the afternoon Wednesday, the highest level since the stock reached $39.48 on Jan. 3, 2011, shortly after GM’s post-bankruptcy return to the stock market with an initial public offering

Both Amaturo and Ward have $50 price targets and “Buy” ratings on GM stock. The targets are 31 per cent higher than the Wednesday trading price, but the stock has already risen more than 60 per cent in the past year on strong earnings, new product introductions and the prospect of the U.S. government’s exit from the business.

Amaturo wrote that GM has the balance sheet to buy back the remaining government shares to end government-imposed limits on executive pay. He also said that in early 2014, GM could start paying a dividend of 80 cents per year, about a 2.2 per cent annual yield at the current stock price.

The U.S. government got 912 million shares, or a 61 per cent stake in GM, in exchange for a $49.5 billion bailout that saved the company from financial ruin during the financial crisis in 2008 and 2009. Treasury gradually has sold off its stake, and a watchdog says the government expects to lose at least $9.7 billion on the bailout.

The Treasury report said Washington has recovered roughly $37.2 billion of the $49.5 billion it spent to save GM five years ago. That means American taxpayers are still $12.3 billion in the hole.

The report didn’t say how many shares were sold in October or how much stock the government still owns. As of Sept. 26, it owned 101 million shares or about seven per cent of the company.

Ottawa and the Ontario government, after completing the sale of a number of their shares in September, said they continued to hold more than 119 million GM common shares and 16.1 million GM series A preferred stock.

The investment is held on behalf of the two governments by Canada GEN Investment Corp., a subsidiary of the Canada Development Investment Corp.

The two levels of government acquired GM shares in 2009 after having provided the ailing automaker with some $10.6 billion in aid during the Great Recession.

— With files from The Canadian Press