Late last year, I wrote an article on General Motors NYSE: GM where I discussed why I though GM was a sound investment. One of the cornerstones of my thesis was GM's capital return plan. This includes the dividend and share buyback initiative. As draws to a close, I think it is prudent to grade the efficacy of GM's share buybacks.

After all, as shareholders, it is our money they are spending. This isn't going to be another tedious article about how GM's share buybacks are ill-conceived simply because the share price today is lower than when the buyback plan was initiated.

In general, share buybacks can be a great way to return capital to shareholders. Buybacks get a bad name when companies purchase shares above the intrinsic value of the company, or when management pays themselves through the buyback via stock options.

Recently, David Einhorn of Greenlight Capital commented on GM's capital return program very succinctly:. That's only a quarter of the earnings are used in the dividend. In other words, earnings could fall three quarters and they would still earn enough to pay the dividend. Another quarter of the earnings are basically used for stock buyback. And then I have the other half of the earnings, still, to worry about. And that can be used to be invested in new technologies. It can be used to make payments on long-term obligations like pensions and stuff like this.

Or it can be used for acquisitions. There's opportunities within that capital structure for GM to do all of those things while still providing me a very current return.

In other words, GM has a reasonable chance to earn its entire market cap probably before Tesla NASDAQ: TSLA is able to earn its first year of annual profit. That would be something worth getting excited about.

Conveniently, there is no mention of outstanding share count.

Presenting the data in this fashion is somewhat misleading. A person might assume that the actual share count was reduced by million shares. Why else would GM exclude a tally of the actual share count? I used Q and K filings for GM over this same period to get an idea of the actual magnitude of the share reduction during the period of the buybacks. The first page of each filing states the number of shares outstanding at the time of the filing.

These stated values are listed below:. Simple arithmetic shows the share count was reduced by 86 million shares; far less than the million repurchased.

The 86 million shares correspond to a 5. To gain another perspective, let's compare the reduction in share count of diluted shares versus non-diluted shares.

On the income statement of each filing, GM lists the weighted average number of diluted and non-diluted shares for the reporting period. The table below shows the number of shares reported during each quarter during the share buyback periods from through The diluted share count was reduced during this period by million shares, and the non-diluted share count was reduced by 55 million.

Diluted shares include securities that have not been converted such as stock options, warrants, and restricted stock units that will increase the share count when converted or exercised.

The key takeaway from this data is that the diluted share count was reduced by more than the non-diluted share count over the same period.

This means that management has been cashing in on stock options.

Otherwise, the reduction in diluted and non-diluted share count would have been the same if no new stock options have been awarded. The current management team is rewarding themselves for their wonderful performance; delivering record earnings and high margins.

General Motors Sells Opel, Vauxhall to PSA for $ Billion (GM) | Investopedia

However, they were simply in the right place at the right time, in my opinion. Their success should not be confused with their ability. GM was given a clean balance sheet after a bailout and subsequent bankruptcy in Record low interest rates combined with loose lending terms have led to record sales for all auto makers. I would much rather see GM executives be compensated with actual stock rather than stock options. This better aligns management with long-term shareholders, and the compensation is visible on the income statement where it belongs.

Sometimes too much compensation via stock options can result in shortsighted decision-making although I don't think this is currently the case with GM. I still believe GM is a solid investment for other reasons stated in my last article. However, I don't think anybody should be pounding the table for buybacks if management is simply going to line their pockets. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha.

I have no business relationship with any company whose stock is mentioned in this article. I am long GM common stock, long GM B Warrant shares, short GM puts, and short GM calls. Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. All Is Not Well With The Buyback Nov. As a shareholder, I want to see how efficiently these buybacks are reducing share count. I'm not particularly impressed. Introduction Late last year, I wrote an article on General Motors NYSE: Share Buyback Plans This isn't going to be another tedious article about how GM's share buybacks are ill-conceived simply because the share price today is lower than when the buyback plan was initiated.

General Motors’ Stock Buyback Follows a Worrying Trend - The New York Times

Recently, David Einhorn of Greenlight Capital commented on GM's capital return program very succinctly: Consumer Goods , Auto Manufacturers - Major. Want to share your opinion on this article?

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