During the darkest days of the financial crisis, General Electric did the unthinkable and slashed its dividend for the first time in 71 years. The widely-held conglomerate nearly pulled the plug completely as the dividend was cut to 10 cents from 31 cents in February 2009. Since then, GE has been trying to rebuild its business operations and shareholder trust.
So, does GE belong in your portfolio?
Founded in 1892, GE is now one of the world’s most valuable companies. The Connecticut-based company is known by consumers for its appliances, while investors typically focus on its infrastructure and financial services that “build, power, move, and cure the world.” In recent years, GE has shifted away from finance operations, making moves such as spinning out its Synchrony Financial business. This appears to be paying off as earnings and dividend payments are on the rise.
In January, GE reported that net income in the fourth quarter surged 61% year-over-year to $5.2 billion. Industrial segment profit gained 9%, with 6 of 7 segments growing earnings. One of the few sore spots was GE’s oil and gas business, where orders fell 10%. This was not too surprising considering the rapid plunge in oil prices over the past six months, and was easily offset by other revenue streams. Overall, total revenue in the fourth quarter grew 4% to $42 billion.
“GE ended the year with strong fourth-quarter industrial earnings and margin growth. The environment remains volatile, but we continue to see infrastructure growth opportunities,” said Jeff Immelt, CEO and Chairman of GE. “We are pleased with our execution in 2014: Meeting our commitment to grow industrial segment profits 10%, industrial segment organic revenue growth of 7%, increasing operating margins 50 basis points, decreasing costs by $1.2 billion, reducing the size of GE Capital and returning $11 billion to share-owners.”
Shareholders are still waiting for the dividend to return to 31 cents per share, it’s pre-crisis level, but GE has raised its quarterly dividend seven times in the past five years. The current quarterly payout is 23 cents per share, which is relatively safe and good enough for a yield of almost 4%. Nonetheless, the share price has been stuck without any momentum power for over a year, failing to break through $27 more than once. Returning cash to shareholders will continue as long as earnings improve, but massive companies such as GE take time to turn around. Investors holding onto GE shares for dividend payments will need to be patient with its share price. If patience isn’t your thing, you should probably look elsewhere.
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