Why was GM paying dividends all these years?

noob_trad3r · May 12, 2009

They were losing money but paying dividends. Why would a company choose to pay a dividend even though they are reporting negative EPS every quarter.

Maybe if GM stopped paying dividend years ago they might have been in better shape?

They were paying dividends even in 2008.

nutmeg · May 12, 2009

It was a ploy to thwart the naked short sellers. Byrne 101.

noob_trad3r · May 12, 2009

Quote from nutmeg:

It was a ploy to thwart the naked short sellers. Byrne 101.

I doubt that was the reason.

Daal · May 12, 2009

Because management gets compensated with stock options creating an incentive for them to try to prop up the share price(or provent a decline) increasing the chance they can exercise their options

noob_trad3r · May 12, 2009

Quote from Daal:

Because management gets compensated with stock options creating an incentive for them to try to prop up the share price(or provent a decline) increasing the chance they can exercise their options

but wont the dividend payout do the opposite since it means retained earnings decrease and GM has to borrow more money to pay dividends?

I figure a cut would actually show the market GM is serious about fixing itself and would prop the price up.

Kassz007 · May 13, 2009

Quote from noob_trad3r:

but wont the dividend payout do the opposite since it means retained earnings decrease and GM has to borrow more money to pay dividends?

I figure a cut would actually show the market GM is serious about fixing itself and would prop the price up.

In hindsight that theory may be relevant for GM because we know what a terrible mess they are in today. But traditionally a dividend will help prop up (or stop the decline) of a share price because it is incentive for the investor to buy the shares therefore demand is higher.

Illum · May 13, 2009

Quote from noob_trad3r:

but wont the dividend payout do the opposite since it means retained earnings decrease and GM has to borrow more money to pay dividends?

I figure a cut would actually show the market GM is serious about fixing itself and would prop the price up.

It would show the market there is a problem, this market likes lies. Delusional buying is what they want. Let them eat cake.

niceneasy · May 13, 2009

it's a great question....

another great question is why weren't they slashing and burning (dealers, inventory, product lines, uaw, bonuses, lard) three years ago when the writing was on the wall... as opposed to now when it is too late...

Optionpro007 · May 13, 2009

Quote from niceneasy:

it's a great question....

another great question is why weren't they slashing and burning (dealers, inventory, product lines, uaw, bonuses, lard) three years ago when the writing was on the wall... as opposed to now when it is too late...

hope.

risktaker · May 13, 2009

The "easy money" and rising market (accompanied by dumb bag holders) of the last few years also kept them stupid longer thanks to Greenscam & Dr Ben.