Free 7-day Trial
All Articles and Columns »

Will GE Lose Its Status as a Dividend King in 2012?

March 09, 2012 | About:
Dividends can give much required strength in unstable markets. Investors looking for such stability may make use of a number of diverse criteria to find fresh companies to make their portfolios stronger.

Dividend investors give worth in extended history of successive dividend payments and periodic hikes. Maintaining dividend payments all through a slump is a difficult task, which just few firms can claim to have accomplished. Dividend investors as well seek companies with enormous liquidity, comparatively low debt and stable revenue with earnings expansion.

A dividend king, General Electric (GE), was profitable for stockholders in 2011 with per-share earnings growth of more than 10%, while its debt to equity ratio dropped for the same period in relation to 2010 and has a projected forward dividend growth rate above 10%.

Dividend History:

General Electric has paid a dividend every quarter for more than one hundred years. General Electric stock is presently trading just below $19, higher from their lows of $14 per share previously in 2011.

General Electric is a firm that has rewarded quarterly dividends constantly for the previous 32 years. Just following the financial crisis of 2008, the company slashed its dividend 66% to $0.10 per share for five quarters. Since then the corporation has hiked dividends four times. In the fourth quarter of 2011 the company surpassed analysts’ forecasts and announced a net income of $4.10 billion. Earnings per share have amplified 11% against the fourth quarter of 2010.

Will GE Hike Its Dividend?

General Electric announced on Friday, Feb. 10, 2012, that its board has decided to hold its quarterly dividend unchanged at $0.17.

The biggest U.S. conglomerate had raised its dividend four times in one and a half years, with the last increase coming in December and signifying a collective 70% addition from the $0.10 a share level the company had cut it to for the period of financial crisis.

The quick speed of hikes was planned as an indication that the company had recovered its confidence following its GE Capital business had been hard hit by the recession. But Chief Executive Jeff Immelt has commented that the Fairfield, Conn.-based firm ultimately aims to recover to its historical practice of increasing dividends one time a year.

In relation to Thomson Reuters I/B/E/S, analysts anticipate per share increase to $19 in the fourth quarter 2012, on average.

The firm is also waiting for the Federal Reserve, which in previous years became the GE Capital’s controller, to offer it the go-ahead to start reimbursing again a share of GE Capital’s earnings to the parent company in the shape of a dividend. Analysts have stated that authorization could clear the way for a better dividend hike.

Some Numeric Calculations:

GE shares presently have a dividend yield of 3.53%, the fifth-maximum in the Dow Jones industrial average, which contains a 2.60% average yield.

Shares are changing hands at a forward price-to-earnings multiple of $10.87, indicating that General Electric is presently undervalued. The company gives a dividend of 3.60%, with a payout ratio of 49.49% of earnings per share. The company’s liquidity is very strong with $131.90 billion in cash on hand. General Electric is expected to hold its place as a dividend king all through 2012.

While the opportunities of dividend seem impressive with General Electric, a more impressive dividend provider in their industry can be found with Koninklijke Phillips Electronics (PHG). Currently trading at around $21 per share, slightly higher than General Electric, this company provides investors with a dividend yield of 5.23% with an annual dividend disbursement of $1.11. This is almost double the expected dividend disbursement of General Electric which is currently predicted to be $0.68.

General Electric portrays extensive exposure to the international economy. So if business circumstances really are beginning to brighten, the industrial heavyweight could start making up for years of unsatisfactory results.

Rising sales would fall acceptably to the bottom line. General Electric’s financial arm is scaled down and trimmed risk to descend the mother moon. And the dividend is still a distant cry from the pre-crisis $0.31.

GE, a Dividend Stock with Buy Ratings:

JPMorgan Chase analyst, Steve Tusa, on Friday, Feb. 17, 2012, upgraded the industrial conglomerate price target to $21 against previously targeted $20 based on the strength of the firm's financial division, General Electric Capital Services (GECS).

JPMorgan analysts wrote in the February 17 report that GECS has moved from a drag with capital competence concerns to a cash “gusher,” which they think is being underappreciated in the sum-of-the-parts debates at GE.

They further stated that it is the time for a debate around GECS as an efficient lever for valuation. Not like any time over the previous decade, when investors could buy a blend of pure-play financials and industrials, the most excellent way to restructure General Electric currently is to put a buy option.

The stock showed a positive weekly performance of 2.12% associated to its rate of return which for the month was 1.48%. Similarly the performance for a quarter continued to remain up with 30.71% and settled at minus 3.07% for a year however year to date performance firmed at 8.39%.

A Fast Fact about GE:

General Electric Co.’s (GE) international staff added 14,000 employees previous year, its first rise since 2007.

Staff increased almost 4.90% to 301,000 employees at the close of 2011 from 287,000 a year ago, when the firm still comprised NBC Universal employees, in accordance with a regulatory filing today. Fairfield, Conn.-based General Electric’s workforce last stretched in 2007, when it grew 2.50% to 327,000.

The U.S. payroll amplified by 10,000 individuals to 131,000, not counting 14,000 general U.S. workers at NBC, in which the firm sold a majority interest to cable provider Comcast (CMCSA). On the similar basis, GE’s abroad workforce increased 12.00% to 170,000.

In accordance with the filing, GE’s pension program was underfunded by $13.20 billion at the close of prior year against $2.80 billion in the year 2010. The firm intends to add almost $1 billion to the plan present year, its first such program since 1987, and looks forward to contribute almost $2.10 billion in 2013.

GE said, starting this year, workers are offered a defined-contribution retirement program rather than the conventional pension plan.

About the author:

InvestmentUnderground
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

If you are fed up with volatile markets and manipulation that put your financial well-being in jeopardy, join us to achieve those gains you deserve without the headache.

Visit InvestmentUnderground's Website


Rating: 3.3/5 (12 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Hide