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GM Stock Buyback Plan Makes General Motors a Buy

General Motors Company (NYSE:GM) has clearly had its troubles in the past. Aside from its obvious setbacks in the financial crisis that resulted in its bankruptcy and bailout, GM also has been plagued by recalls in the more recent future and underperformance in share price.

GM Stock Buyback Plan Makes General Motors a BuyIn fact, GM stock is actually in the red during the past 12 months versus a double-digit gain for the S&P 500 in the same period.

But that could all be ready to change. General Motors just announced a big-time stock repurchase plan, committing $5 billion through 2017 on GM stock buybacks, and pledged to allocate more cash toward dividends going forward.

This is great news, and a sign that General Motors stock could be a big bargain buy at these prices as a result.

GM Stock Avoids Proxy Fight

Now, don’t think GM stock holders are getting this boon out of generosity. General Motors has been facing the threat of a proxy fight from investor Harry J. Wilson, and this deal is in part a way to appease the former member of Obama’s auto task force and keep him off the GM board of directors.

Wilson has dropped his bid to join the board, though, thanks to the $5 billion GM stock buyback plan and the promise of future dividends.

These expenditures are a big deal, considering GM stock already yields about 3.3% at current prices.

What’s more, GM stock boasts a forward price-to-earnings ratio of about 7.5 right now. That’s lower than the roughly 8.5 forward P/E of Ford Motor Company (NYSE:F), and way below Japanese automakers Toyota Motor Corp (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC), which have earnings multiples around 12 right now.

Share repurchases will continue to lift earnings and bolster an already impressive valuation, and the dividend could be very substantial in years ahead.

Sure, there are headwinds given soft global auto sales, but GM stock actually is on track to turning a profit in Europe in the next year or so — even when taking into account the very expensive costs of recent recalls and related repairs.

Throw in the appeal of its growing line of electric vehicles and GM’s high-profile efforts to take the fight to Tesla Motors Inc (NASDAQ:TSLA) with its updated Chevrolet Volt and new entry-level Bolt electric vehicle, and there are reasons to be optimistic the best days of GM stock are ahead of it.

General Motors still faces serious top-line troubles, yes, and global economic weakness outside of America is creating some difficulties.

But patient investors looking for a bargain stock with a good yield could do much worse than GM right now after this dividend and buyback news.

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at or follow him on Twitter via@JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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