Garrett Motion's Dividend and Capital Return Strategy: A Sustainable Path Amid Electrification Transition

Garrett Motion Inc. (Nasdaq: GTX) has recently reaffirmed its commitment to shareholder value through a $0.06 per-share dividend declaration, payable on September 16, 2025. This marks the second quarterly payout of the year, aligning with the company's broader capital return strategy of distributing 75% or more of its Adjusted Free Cash Flow (FCF) via dividends and buybacks. With Q2 2025 FCF surging to $121 million—a 95% year-over-year increase—investors must ask: Is this strategy sustainable, and how does it align with Garrett's ambitious electrification goals?

Dividend Sustainability: A Balancing Act

Garrett's dividend policy, initiated in 2025, targets $50 million in annual shareholder returns through quarterly payments. The current $0.06 per-share rate implies a yield of ~0.8% at recent share prices, modest but conservative given the company's capital-intensive R&D in electrification. Notably, Q2 2025 FCF of $121 million was sufficient to cover both the $13 million in dividends and $22 million in share repurchases. This leaves ample room for future growth in payouts, assuming FCF trends remain robust.

The company's free cash flow generation has been a standout metric. For the full year 2024, FCF reached $358 million, with 2025 guidance projecting $330–$410 million. This liquidity is critical, as it allows Garrett to fund both shareholder returns and its $4.6% R&D budget—over half of which is directed toward zero-emission technologies—without overleveraging. The balance sheet further supports this: $232 million in cash and $630 million in undrawn credit lines as of June 30, 2025, provide a buffer against macroeconomic volatility.

Capital Return Strategy: Share Buybacks as a Force Multiplier

While dividends are a steady component, share repurchases have been more aggressive. In Q2 2025 alone, Garrett repurchased $22 million of stock, leaving $198 million remaining under its $250 million 2025 buyback program. Since Q3 2024, the company has spent $438 million on buybacks, reducing its share count by 13%. This approach not only boosts earnings per share (EPS) but also signals management's confidence in the business's long-term trajectory.

The alignment with electrification is clear. By deleveraging $400 million since 2024 and maintaining a 2.8% capex-to-sales ratio (with over 25% allocated to zero-emission tech), Garrett is reinvesting in growth while rewarding shareholders. Its 3-in-1 E-Powertrain, E-Cooling compressors, and fuel cell systems are now in production readiness, positioning the company to capture rising demand in hybrid and fully electric vehicles.

Electrification as a Long-Term Tailwind

Garrett's strategic focus on electrification is not just a financial decision but a structural one. The global shift toward electric vehicles (EVs) and hybrid systems is expected to redefine the automotive industry over the next decade. Garrett's technology—such as its 3-in-1 E-Powertrain, which integrates an electric motor, inverter, and transmission into a single unit—addresses key pain points in EV adoption, including cost and complexity.

This innovation is backed by strong operational performance. Despite flat constant-currency sales and challenges in the diesel and aftermarket segments, Garrett's Adjusted EBIT margin hit 13.6% in Q2 2025, up from 11.2% in Q2 2024. The company's cost discipline and productivity gains have insulated it from sector-wide headwinds, a critical factor in sustaining its capital return program.

Risks and Considerations

While the numbers are compelling, investors should remain cautious. The electrification transition is capital-intensive, and competitors like BorgWarner and ZF Friedrichshoffen are also investing heavily. Additionally, macroeconomic risks—such as a potential slowdown in EV adoption or rising interest rates—could pressure margins. However, Garrett's strong FCF generation and flexible balance sheet mitigate these risks.

Investment Thesis: A Buy for the Long-Term

Garrett Motion's capital return strategy is not only sustainable but strategically aligned with its electrification ambitions. The combination of disciplined buybacks, modest dividends, and reinvestment in high-growth technologies creates a virtuous cycle: strong FCF funds shareholder returns, which in turn justify a higher valuation as the company scales its EV offerings.

For investors seeking exposure to the electrification transition, Garrett offers a compelling case. Its current dividend yield, while unexciting, is well-supported by cash flow, and the buyback program has proven its commitment to enhancing shareholder value. With the stock trading at a discount to peers and a clear roadmap for growth, now may be an opportune time to consider GTX for a diversified portfolio.

In conclusion, Garrett Motion's capital return strategy is a testament to its financial discipline and visionary leadership. By balancing near-term shareholder rewards with long-term innovation, the company is well-positioned to thrive in the electrified future of mobility.