General Motors'

(GM) - Get Report

investment-grade credit rating is gone. Will its fat dividend yield be next?

GM's 6%-plus yield is arguably its common stock's most attractive feature, the result of the steady slide in the automaker's shares this year. If the $31 a share offered by Kirk Kerkorian provides a floor for the stock -- which several analysts believe it will -- investors who buy now could lock in a healthy return based solely on the $2 annual dividend.

Unless, of course, that dividend is canceled or reduced. And many also see that as a possibility.

"The yield at that level tells you that something's the matter here," Burnham Securities analyst David Healy said. "That's why I think the dividend is at risk."

To be sure, even with Standard & Poor's recent credit downgrade, which lowered GM to junk status (along with

Ford

(F) - Get Report

), the company has the liquidity and borrowing power to continue funding the dividend, even if earnings and cash flow are nonexistent. At the end of 2004, the company had almost $30 billion to cover common stock dividends, which currently come out to a little more than $1 billion a year.

GM spokesman Jerry Dubrowski said "the board sets the dividend, and historically, they set the dividend to be sustainable over the business cycle." Beyond that, he had no further comment.

Canceling or cutting the payout would be a significant blow to the common stock, a shock GM would presumably be loath to unleash on its already traumatized shareholders.

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Still, according to Healy, those considerations might not be enough to save it. GM is dealing with more constituencies than just shareholders, he notes, and in order to win necessary concessions on health care and legacy costs with organized labor, it might have to spread out the pain.

"Health care costs are absolutely killing these guys, and the only way they can get a break from the

United Auto Workers Union is to make a demonstration of shared sacrifice," Healy said. A dividend reduction could be defensible as the shareholders' portion of hardships that might also include pay cuts, layoffs, plant closings and tighter terms for dealers and suppliers, Healy said.

At $2 a share, GM is currently paying out about $1.1 billion a year in common share dividends. While that's high compared with the company's basically break-even cash flow, the money is dwarfed by the cost of servicing the company's $300 billion in outstanding debt.

Brett Hoselton, an analyst with KeyBanc Capital Markets, a division of McDonald Investments in Cleveland, rates GM's stock a hold, a rating that remained unchanged when Kerkorian announced his 5% tender offer. Hoselton believes there is a low probability that GM will cancel its dividend, because the company has nothing to gain from the act and much to lose. While it may preserve cash flows, Hoselton argued that ending the dividend would have little effect on its credit rating, since S&P made little mention of the dividend in its downgrade.

"You're doing significant damage to your equity investors if you remove the dividend here," Hoselton said. "If you have nothing to gain on the debt side, and everything to lose on the equity side, then what's the point?"

Even if the common stock dividend falls or is eliminated, a yield-hungry investor has a few other options with GM. Dividends offered on several preferred issues are probably more secure than the common, and their yields are higher.

General Motors' trust preferred shares, trading on the Big Board under the tickers XGM and GMW, are essentially debt securities that trade like equities on the

New York Stock Exchange

, offering yields upward of 9% and enough liquidity to be palatable for regular retail investors. The price of both issues has dropped by over 15% in March. Now that S&P has moved, those prices could find support.

While preferred shares offer better protection than common shares in the event of a bankruptcy, bondholders remain first in line. Yields on 30-year GM bonds and convertible notes have climbed above 10%.

Despite all risks facing GM these days, there are a number of investment plays on the company's securities that carry a potential for above-market returns.