General Motors (GM) said today it was starting a new accelerated $10 billion share buyback program. As a result, a huge number of calls have been traded as seen in the Barchart Unusual Stock Options Activity Report.
Most of the large unusual options trades are call options in near-term expiration periods. Investors are clearly hoping that this will be a boon for the stock in the near term.
What's more, the company said it would raise its quarterly dividend by 3 cents per share to 12 cents starting in 2024. That brings the annual dividend to $0.48 per share. At today's price of $31.85, this gives GM stock an annual yield of 1.507%.
Clearly, the company is looking to reward shareholders, despite some bad news lately, especially in relation to its Cruise operations which have been cut back.
In fact, the money being used for the buybacks was previously planned for investments in electric vehicles, according to the Wall Street Journal.
Investors in these call options have chosen strike prices that are at-the-money- or slightly out-of-the-money. This is because they are hoping GM stock will rise significantly over the next several days until expiration based on the company's recent buyback and dividend announcements.
GM Pivoting Away From EVs to Shareholders
It's not like GM is in bad financial shape and is looking for a rebound in its fortunes. The company had a profitable third quarter. Moreover, it signed a new labor contract and it said in its press release on Nov. 29 that it was looking to offset the costs of those higher expenses.
Mary Barra, GM's CEO, said, "the long-term plan we are executing includes reducing the capital intensity of the business, developing products even more efficiently, and further reducing our fixed and variable costs."
So, in effect, the company is reducing its electric vehicle capex spending and using it to “assuage” investors, as the Wall Street Journal put it in their article.
Whether this will work in the long term is anyone's guess.
But there is growing anecdotal evidence that people are not flocking to buy electric vehicles, at least at their present prices. For example, the WSJ opinion column has an article about a letter sent from 3,900 car dealers to the Biden Administration about the large numbers of EVs that are piling up unsold on their dealer lot. They want the Administration to ease rules about EV sales mandates.
The bottom line is some investors think that buying GM stock and short-term calls is a good bargain now that the company is back to rewarding shareholders rather than the EV car investments.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
