Recent Buy – General Electric Company (GE)

GE
I initiated a new position in General Electric Company (GE). GE is a conglomerate and hardly needs an introduction. The company is an industrial behemoth and has been around for over 120 years, with business in a broad array of segments serving over 100 countries.I have wanted to add a stock in the industrials sector for a while now, in order to have a better asset allocation. This position brings a bit of much needed balance to my portfolio. I initiated my position with 75 shares of GE at a price of $26.80 per share. This increases my annual dividend income by $66.

Corporate Profile (from Yahoo Finance)

General Electric Company operates as an infrastructure and financial services company worldwide. The company’s Power and Water segment provides gas, steam and aeroderivative turbines, nuclear reactors, generators, combined cycle systems, controls, and related services; wind turbines; and water treatment services and equipment. Its Oil and Gas segment offers surface and subsea drilling and production systems, equipment for floating production platforms, compressors, turbines, turboexpanders, high pressure reactors, industrial power generation, and auxiliary equipment. The company’s Energy Management segment provides electrical distribution and control products, lighting and power panels, switchgears, and circuit breakers; engineering, inspection, mechanical, and emergency services; motor, drives, and control technologies; and plant automation, hardware, software, and embedded computing systems. Its Aviation segment offers jet engines, aerospace systems and equipment, and related replacement parts for military and commercial aircrafts; and maintenance, component repair, and overhaul services. The company’s Healthcare segment offers medical imaging and information technologies, medical diagnostics, and patient monitoring systems; and disease research, drug discovery, and biopharmaceutical manufacturing services, as well as remote diagnostic and repair services. Its Transportation segment provides freight and passenger locomotives; diesel engines for rail, marine, and stationary power applications; railway signaling and communications systems; underground mining equipment; motorized drive systems; information technology solutions; and replacement parts. The company’s Appliances and Lighting segment home appliances and lighting products. Its GE Capital segment offers commercial loans and leases, fleet management, financial programs, credit cards, personal loans, and other financial services. The company was founded in 1892 and is headquartered in Fairfield, Connecticut.

Recent Buy Decision

General Electric has made it clear after the recent recession that the direction of the company lies in the original industrial roots of the business. The company has a backlog of $245B, and their revenues surpass $1B from 24 countries. Anyway you measure it, those are some impressive numbers. GE also expects increased spending in infrastructure projects around the world as more people move into the middle class in the emerging and frontier markets and is expected to be well positioned to benefit.
Recently GE announced that they are going to spin off the retail financial business, which will be a good move for the company overall. I am a fan of spin offs and believe that it creates immense value for shareholders.The following analysis from Trefis shows the current and expected growth in revenue in various segments.

 

The dividends paid by GE have been growing since 2009, after they were cut during the financial crisis. GE was a former Dividend Champion and now has a track record for raising dividends for 4 consecutive years at an annualized rate of 16%. GE will next year get upgraded to the Dividend Challengers list if they raise their dividend again. Current payout ratio stands at 62%.

Risks

The stock is not cheap. With a ttm P/E close to 19, the current stock price is quite expensive. In addition, the broader stock market is at all-time highs, so any correction will have repercussions and will be reflected in most components of the index.
GE also closely follows the performance of the global economy. If there are problems such as slow/stalled growth in US economy, a bigger slowdown in China and other emerging economies, that could spell trouble for GE. The other risk is in the spin off of the financial arm – it will be interesting to see how the new company will be managed and run. One advantage the shareholders have is: if that new entity isnt managed well, shareholders can unload the shares while still maintaining equity in GE.
A summary of the stock:

  • Symbol: GE
  • Quote: $26.89
  • 52-week Range: $22.76 – $28.09
  • P/E: 18.94
  • Yield: 3.30%
  • 5-yr average yield: 3.30%
  • 4-yr DGR: 16%
  • Graham Number: 20.50
Full Disclosure: Long GE. My full list of holdings can be found here.

27 thoughts on “Recent Buy – General Electric Company (GE)

  1. Hello fellow shareholder. I started buying GE in 2008, and kept buying as it went down…..and now back up. I think we will see substantial dividend raises in the next few years, as management tries to reclaim its former glory. I am most optimistic on the water/power and healthcare divisions. The fact that they jumped into the oil/gas industry is concerning.
    -Bryan

    • Hey Bryan, GE likes to try their hand at everything. You started buying at the right time! I remember looking into GE back in 2008-2009 when it dropped to < $10. Should’ve picked some up back then, but the financial arm was bleeding money and I was already losing money in my other financial investments. The future looks brighter now.

      regards

    • You would have thought, but my first purchase was around $30 per share. At the time it seemed like a good move, it was down more than 25% from $41. Fortunately at the bottom my GE investment down 30% instead of 75% from the peak…..but it still wasn’t fun. I didn’t assess the risk from GE Capital. Coulda, woulda, shoulda….
      -Bryan

    • Coulda, woulda, shoula indeed. Its easy looking back now. I imagine investing is like walking backwards – you can only see where you’ve been but dont know whats coming for you.

  2. Nice buy R2R, GE should be a good stock going forward as its management gets back in the good graces of shareholders with regular dividend increases again. That massive backlog doesn’t hurt either. Do you know how the spin-off is going to work? Is it going to be GE shareholders being given shares of the new financial company or one of those situations where you can exchange your GE shares for the new company? Either way I like it since it allows GE to get back to focusing on the industrial sector.

    Glad to have you as a fellow shareholder.
    Best wishes,
    SFZ

    • Im finding a lot of fellow investors in the dividend growth community 🙂 I believe the plan for the spin off is to have a share swap if the investors elect for it. GE has not been clear about the plans and its been lost in the noise from the media. From what I gather, investors will be given a choice to opt-in for a share swap from GE to Synchrony (the new IPO).

      Best wishes

    • Ok cool thanks for the info. I’ve seen a lot online about the spin-off but not a lot about the actual logistics of the spin-off for shareholders. In that case, I’ll probably just stick with my GE shares.

    • Yeah Ive seen mixed reports about it…Ive tried to read up during the day as well, but theres no details on the logistics. Hopefully they will make it clearer when we get closer to the IPO. Its going to be a big one – with a valuation of about $20B.

  3. I’m liking GE as well and might add some here because I want to get more capital invested and there’s not a whole lot of options available. I’ll be glad when the finance arm is spun off to get GE back to its industrial roots. Any thoughts on what you’ll do wit the shares of the new company? I’m leaning towards selling the shares once I get them or soon after.

    • Hi PIP,
      Its slim pickings out there. I decided to just go for it knowing that I am paying a bit of a premium. I havent decided what to do with the financial spin off. I will have to read up more and do some research – from the initial readup it looks like its going to be a big one – with a company valuation of about $20B.

    • Well guess I’ll wait to add GE. Just saw they went ex-div today so hopefully I can pick a better price. I need to a do a lot more research on the spinoff but I’m pretty sure I’ll sell not long after.

    • Yeah I decided to pick up before it went ex-div today…so, I will start collecting my dividends from this payment. Looks like the spin off will be just on the retail finance…the rest of the GE financing department still stays in the company.

    • I would’ve been happier picking it up at a sub-$25 level, but oh well I’ll take it. I picked up 75 shares…and will be circling back to add more later in the year or early next year.
      Good to hear that you dividend portfolio buildup is coming along. Looking forward to reading your experiences and your updates

      cheers

  4. d says:

    Finally a stock purchase I can get behind. GE is one of my long time holdings and I also plan to add more to my current portfolio. I have a feeling their mojo will return after the stock spin off of their financial division later this year. I also feel that in time GE will return to its achiever and aristocrat status as a dividend payer. Thanks for sharing.

    • d,
      GE can be expected to get back to the list of elite dividend companies….its still very early and they have only been raising dividends for 4 years. I expect next year they will get back on the Dividend Challengers list and I expect the dividend growth to slow down a bit after: current dividend growth rate stands at 16% annualized rate, they are getting close to the payout amount of pre-crisis level, and their payout ratio is 62%.

    • Thanks for the complement, Dennis. I didnt think I made this article as great as I could have. GE is so huge and its really hard to cover various segments and the pros and cons of each in one article. I figure one can write about GE exclusively for a whole blog 🙂

      regards

  5. R2R,

    Like the buy. I continue to like GE here, with or without Alstom. I just hope they don’t overpay if they win the bid.

    Great businesses, huge backlog, massive economies of scale, huge diversification, and reduction of risk via GE Capital. The valuation and yield is pretty solid, overall. Not much to dislike.

    Best wishes!

    • Hi DM,
      I hope so as well – that they dont overpay for the Alstom bid. When companies start fighting and overbidding for takeover, the leadership egos get in their way into making bad decisions…similar to what happened with HP taking over Autonomy. Everyone knew that they were overpaying.

      The rest of the company looks solid and Im happy to be a part owner of this company.

      Best wishes

  6. R2R – I echo most of the above comments. I picked it up a few months ago for $24.66 after watching it for some time. It has lagged some of the other big industrials, including UTX, which I also own. Hoping it can make up some of the lost ground.
    Good luck.

    • Hi Dining,
      Ive been watching it as well for a few months now. I had a hard time trying to decide between GE and UTX and eventually went with GE. I really like UTX as well and will probably add it to my portfolio in the future.

      Thanks for stopping by

  7. R2R – GE is a solid company with an attractive and appears to be stable yield of 3.3%. P/E could be a tad better but not bad under at just under 19. Looks like you made it just in time for their Ex-Dividend so that is definitely a plus! 🙂

    Wishing you continued success in your journey! AFFJ

    • Thanks for the wishes, AFFJ.
      Its one of those companies that you see everywhere and I can remember the GE name from when I was a kid. The yield has pretty much recovered with the immense growth over the past 4 years….lookign forward to collecting my dividend cheques starting July 🙂

      Wishing you the best in your financial journey as well.

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