General Electric Dividend Increase

General Electric Company (GE) announced today that its board of directors has approved a 4.5% increase to its quarterly cash dividend from $0.22 to $0.23 per share. The new dividend will be payable January 26th, 2015 to shareholders on record at th close of business on December 22, 2014. The ex-dividend date is December 18, 2014. “We are pleased to increase GE’s quarterly dividend for the seventh time in five years,” said GE Chairman and CEO Jeff Immelt. “Returning cash to shareowners remains our top priority, while we continue to invest in long-term growth. Alongside our strong operational outlook, today’s announcement reflects our balanced and disciplined approach to capital allocation.”

  GE

The increase results in annual dividend of $0.92 per share. My portfolio consists of 75 shares of GE and increases my annual dividend from $66 to $69, an increase of $3 annually.

The Buyback Annoyance

Stock buybacks have been the craze over the past couple of years. Ever since the Fed has flushed the economy with cheap money, corporations have been using the funds to invest in their businesses to grow, spend on mergers and acquisitions, raising or issuing special dividends, and of course, the buyback annoyance – buying back its own company stock. While a majority of the investors and traders see that as a good thing, I see it mostly as an annoyance that does not achieve much more than some financial engineering.

The Buyback Annoyance

For the readers who are unfamiliar, buybacks – also called share repurchase, is where a company decides to purchase its own shares from the marketplace, thus reducing the number of outstanding shares. The reduced number of shares in the market is good for the key-stats in annual reports as it shows an increasing earnings-per-share (EPS) value and increases the value of the remaining shares in the market. Don’t get me wrong…there is a place for buybacks in the marketplace. Without any buybacks, shareholders would see their stock value depreciate as companies routinely issue more shares thus making the value of each share just a little bit less valuable. But my annoyance has been with the degree with which we see the buybacks occurring.

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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.