This post is by Jimbo – a long time participant in the Capitalstool.com message board.
GM looks awfully cheap at 6 times earnings and 5% dividend yield.
Very tempting – Until you see the unseen and hear the two words “PENSION DEFICIT” for whom the stock bells toll.
GM has 21 BILLION in unfunded pension liabilities.
But it could be even worse. What if the actuarial assumptions under which the current deficit is calculated are too generous and the earnings rate of the pensions funds in the future are lower than the current actuary determined earnings rates.
What if the pension deficits in time exceed the current market cap of GM.
The generous dividend feels very much like picking up pennies (or is that dimes?) in front of the steam roller.