Dividend Stocks: General Electric

This is the fourth part in my series on dividend investing. Today, I would like to look at one of the oldest companies in the United States. The company is involved in just about every facet of the United States economy. The company generates revenue from industrial production, healthcare, financial services, and product sales. It’s one of the largest companies in the world with a market cap over $200 billion dollars and a good dividend play.

Today’s selection in the dividend stocks series is General Electric (GE).

Dividend Stocks That Pay

General Electric went through some pretty difficult time during the market crash of 2008. The stock dropped to the $5 range as the company was pummeled due to risky loans by its consumer financing division, GE Capital.The company slashed its dividend to contain costs and  began divesting itself from different businesses. GE has been focusing more on its industrial businesses and less on its financial arm. General Electric is positioning itself to be a leader in energy infrastructure.

 

Since the lows of March 2009, the stock has rebounded nicely and General Electric has quadrupled. Fortunately, I did buy shares at the $5 level because I thought that the company was simply too big to fail. Warren Buffett even picked up $3 billion dollars of the preferred stock during the financial crisis.

Fast forward to 2011 and General Electric is on firm financial footing again. The dividend has been boosted and will see continued increases in coming years. General Electric made a $14 billion dollar profit in 2010. It’s true that GE paid no taxes in 2010 but don’t blame the company! That is the fault of politicians and tax laws that benefit corporations.

General Electric’s Stock Valuation

Shares trade at 17.5 times this year’s earnings and 12 times next year’s. GE is stunningly cheap trading at just 1.7 times book value,  1.4 times sales, and just 5.8 time cash flow. The stock is trading right in line with earnings growth.

GE had been a dividend favorite of income investors for years until two years ago. The company cut its dividend for the first time in its history and lots of investors abandoned the stock. The 68% dividend cut was a major hit as the firm only paid out 10 cents a quarter to investors. GE recently raised its dividend back up to 14 cents a quarter. It’s a far cry from the 31 cents per quarter paid back in 2008 but it is a start.

GE has made my dividends list because of its 2.9% yield. I have been saying that the stock is attractive for awhile now and I still believe so. The current dividend payout represents just 42% of this year’s earnings and just 34% of next year’s earnings.The dividend has substantial room for growth.

I am a fan of the company’s new direction and return to its core businesses. GE Capital had become too bloated in recent years and saddled the company with lots of bad loans.  I have to give CEO Jeffrey Immelt credit. He has done a good job of slowly divesting these assets. In the past I have been a harsh critic of Immelt. I refused to buy the stock for years because GE had no growth. Those days are finally over.

 

Comments

  1. avatar JT McGee says:

    I see this as a mostly political play. GE is in bed with the current administration, and unless there is a long-term law passed that sends revenue GE’s way, it doesn’t really make sense for me. Not that they won’t clean up right now…but they’re too large, and becoming too government dependent for me to forecast the future.

  2. avatar Brendan says:

    Immelt outright lied and said ge would NOT cut the dividend. I do not trust him and will not buy ANY company he is in charge of.

    I agree ge is too big too fail, but they need a few more years of divident growth for me to consider buying in.

  3. avatar Jon says:

    I didn’t quite catch GE at the bottom, but picked it up for what I thought was a really cheap price as things were recovering a bit. I decided to hold on even after they cut the dividend because I knew Imelt was in bed with Obama, and figured profits would be good for the next few years. I’m not looking to increase my position at this point, there’s too many other good dividend payers out there right now.

  4. Really sorry I didn’t pick up GE back then. I did get quite a few other on sale stocks though and made a nice return for the money I had.

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