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Income Investors: Take General Motors (GM) Stock for a Spin

GM is hitting the throttle on shareholder payout

Behemoths with a sordid past the likes of “Government Motors” aren’t generally the kind of stocks I think are poised to outperform the market. Yet, in the sea of red ink we’ve seen so far in 2016, General Motors (GM) just might be a stock that can keep shareholders driving higher — and also collecting a fat dividend.

Income Investors: Take General Motors Company for a Spin (GM)On Wednesday, the biggest U.S. automaker raised its full-year guidance, stating that it expects per-share earnings between $5.25 and $5.75.

That’s a nice leap forward from the prior guidance between $5 and $5.50. If GM can split the difference on the new forecast and come in with full-year EPS of $5.50, then that would easily pass the $5.41 consensus parked in auto analysts’ books.

For income investors looking to get a solid dividend yield, then GM stock represents a stable vehicle with some decent horsepower.

GM Stock Is an Income Investor’s Dream

In addition to raising its full-year forecast, GM also raised its quarterly dividend 5.6% to 38 cents a share from 36 cents. Based on the current price of just under $30, that’s an approximate 4.8% dividend yield in GM stock.

That dividend alone is reason to buy GM stock if your primary goal is to generate income. GM actually threw in another bonus to attract shareholders, however, announcing an increase of $4 billion in its stock buyback plan. That brings the total amount of the buyback authorization to a whopping $9 billion.

Another reason to like GM here is that while it’s increasing its earnings outlook, its biggest rival, Ford Motor (F), came in with only a lackluster profit forecast. Although Ford announced a record pre-tax profit for 2015, it didn’t lift its profit outlook for 2016. Ford opted for the somewhat uninspiring verbiage that 2016 pre-tax profit would be “equal to or higher than 2015.”

Despite General Motors’ upbeat forecast and dividend hike, there are reasons to be concerned about 2016 growth in the entire auto industry. Although we saw record auto sales in 2015, much of those sales were financed by so-called “subprime” auto loans.

Moreover, even those with good credit might find themselves facing higher borrowing costs in the near future due to expectations of several more rate hikes by the Federal Reserve in 2016.

Then there are worries over a continued slump in global growth emanating from China, as well as the ongoing plunge in oil prices, both of which could put a serious hurt on U.S. economic growth, consumer confidence and the willingness for consumers to make a new car purchase.

Yet despite these potential obstacles in GM’s 2016 road, I think for income investors, now might be the right time to test-drive GM shares.

With just about every stock in the market stalling over the past four weeks, it’s no surprise GM, too, has stalled. Shares are down some 11% over that period.

If you’re a buy-and-hold bargain hunter looking for a solid annual dividend yield, however, then there may be no better time to take GM stock for a spin.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

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