GM's $20B Buyback: A Better Reward Than Ford's Dividend?

General Motors has been aggressively reducing its share count through massive buybacks. Since the beginning of 2023, GM has shrunk its shares outstanding from about 1.395 billion to 849 million as of the third quarter—a nearly 40% reduction. This has helped drive the stock up almost 130% over that period, far outpacing rivals Ford and Stellantis.

In its third-quarter report, GM announced a new multiyear $20 billion share repurchase authorization. If the company spends this at an average price of $80 per share, it could retire another 250 million shares, reducing the count to roughly 599 million. That would represent a 29.4% reduction from current levels and, all else equal, could boost earnings per share by about 41.7%.

GM has the financial firepower to execute this plan. In the third quarter alone, it generated $5.9 billion in adjusted automotive free cash flow and ended with over $23 billion in cash. Management also raised its full-year 2026 free cash flow guidance to $11.5–$12.5 billion, up from $9.5–$11.5 billion.

The company's strong cash flow is driven by high-volume sales of full-size trucks and disciplined incentives, which remain below the industry average. This contrasts with Ford, which is known for its generous dividend but has a lower total yield when buybacks are included.

Morningstar's total yield calculation, which combines buybacks and dividends, shows GM at 12.59% and Ford at 5.7%. Despite Ford's dividend getting more attention, GM's strategy of returning cash through buybacks appears to be more effective in rewarding shareholders.

For investors, the key takeaway is that GM's buyback strategy is creating significant value. By reducing the share count, GM boosts earnings per share even if net income stays flat, which can lead to a higher stock price over time. The 130% stock gain since early 2023 is evidence that the market is rewarding this approach.

The new $20 billion authorization signals management's confidence in GM's cash flow generation and its commitment to returning capital to shareholders. If executed at attractive prices, it could further enhance per-share metrics and support the stock.

Compared to Ford, GM's total yield is more than double, making it a more compelling option for income-focused investors who are willing to accept buybacks instead of direct dividend payments. However, buybacks are less predictable than dividends and depend on management's discretion and market conditions.

Investors should also consider that GM's cash flow is heavily reliant on truck sales, which are cyclical. A downturn in the economy could pressure cash flow and force the company to slow buybacks. Ford's dividend, while lower in total yield, may provide more stable income.

Ultimately, the article highlights that sometimes the most effective shareholder returns aren't the most obvious. GM's quiet but powerful buyback program may be a better way to build wealth than Ford's celebrated dividend.