GM Shorts and Longs Equally Nervous Ahead of Dividend Declaration
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There is some nervousness on both sides of the fence ahead of General Motor�s (NYSE: GM) next dividend declaration, which should come shortly. Last year, the declaration was on 05/04 for the comparable quarter. The company has maintained the $0.50 per share quarterly dividend since early 1997, but also during that time, has never earned less than $3.23 per share for the year. In March, when the company lowered their guidance, they said they see full year earnings between $1 and $2 per share, but with the latest quarterly earnings report they said they would not provide full year guidance, effectively voiding the prior disappointing figure.
The �shorts� feel that it is only a matter of time before GM cuts their dividend. They suggest it is corporate suicide for a company to dig into the coffers to pay out a $2 per share dividend, when they are losing money or making much less. �Longs� on the other hand see the glorious 7.5% yield on the dividend, and are beating that the company lives up to the last word from a company official on the topic --- GM's CFO told Bloomberg TV on 04/19 that a dividend cut is NOT being considered.
Why should shorts be nervous? According to recent data, there are about 78 million shares of GM being sold short, up about 45% from the last count in mid-March. These shorts will have to pay about $39 million from their own pockets for the quarterly dividend. It may have been fun for the shorts to ride GM lower, but are they going to want to stay short and pay the $2 dividend, which is effectively a 7.5% annual loss based on the currently market price? My guess is many will move to cover if the $0.50 per share quarterly dividend is declared and some may cover ahead of declaration, Remember there is a lot of 'fast money' in the stock, noting the large increase in short interest over the past month. These new shorts got in at much lower prices; so while a hedge fund that went short at $50 may fell secure in waiting out a dividend declaration, the 'fast money' may not.
Why should longs be nervous? Here is the standard response given by GM's investor relations representatives when asked about the company maintaining the dividend, "GM's board reserves the right to declare a dividend they feel is appropriate at the time." Not too reassuring is it?
The �shorts� feel that it is only a matter of time before GM cuts their dividend. They suggest it is corporate suicide for a company to dig into the coffers to pay out a $2 per share dividend, when they are losing money or making much less. �Longs� on the other hand see the glorious 7.5% yield on the dividend, and are beating that the company lives up to the last word from a company official on the topic --- GM's CFO told Bloomberg TV on 04/19 that a dividend cut is NOT being considered.
Why should shorts be nervous? According to recent data, there are about 78 million shares of GM being sold short, up about 45% from the last count in mid-March. These shorts will have to pay about $39 million from their own pockets for the quarterly dividend. It may have been fun for the shorts to ride GM lower, but are they going to want to stay short and pay the $2 dividend, which is effectively a 7.5% annual loss based on the currently market price? My guess is many will move to cover if the $0.50 per share quarterly dividend is declared and some may cover ahead of declaration, Remember there is a lot of 'fast money' in the stock, noting the large increase in short interest over the past month. These new shorts got in at much lower prices; so while a hedge fund that went short at $50 may fell secure in waiting out a dividend declaration, the 'fast money' may not.
Why should longs be nervous? Here is the standard response given by GM's investor relations representatives when asked about the company maintaining the dividend, "GM's board reserves the right to declare a dividend they feel is appropriate at the time." Not too reassuring is it?
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