GE Stock: An All-Weather Dividend Stock

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Take a step back for a moment. Think of all the market crashes you’ve experienced. Maybe you owned General Electric Company (GE) and worried about it. Here we are all those years later and GE stock is down from its all-time high a mere $1.24 — or about 4.5%.

GeneralElectricLogoHPThat, my friends, is the reason to own General Electric.

GE has been around for more than a century. Thanks to the wisdom of management over those years — and especially during the tenure of legendary CEO Jack Welch — GE became much more than just a light bulb company. It is a global industrial conglomerate that has multiple divisions in aviation, energy, finance, healthcare, transportation and home improvement.

Thanks in part to offering a massive set of products for businesses and consumers, I’m confident that GE will be around even after the Zombie Apocalypse. It is the original all-weather stock. It survives everything and pays dividends no matter what.

GE Stock During the Financial Crisis

There is no better example of how GE stock can hold up in a storm than the 2008 financial crisis.  Look at revenues, net income, and dividends before, during, and after the meltdown. Remember, these numbers are in billions, except dividends, which are in dollars per share:

Year Revenues Net Earnings Div/Share
2007 172 22.2 1.15
2008 182 17.4 1.24
2009 153 11 0.61
2010 149 11.6 0.46
2011 146 14.1 0.61
2012 147 13.6 0.70
2013 146 13 0.79

Source: GE 10-Ks

As the above table shows, in what was arguably the worst economic environment of the modern age, GE cut its dividend, but it kept paying it.

Even at 46 cents per share, the low point in 2010, GE still paid billions of dollars to shareholders. GE stock fell 80% during that period. Yet, here it is in late 2014, back at $27, near its all-time high.

Bears point to flat revenues and earnings per share (EPS) that is goosed by stock buybacks. I normally don’t take kindly to a company trying to juice its EPS in that manner, but GE is one of the rare exceptions. I don’t see buybacks as a way to manage earnings with GE stock, but as yet another way to return capital to shareholders. Reducing share count makes the stock you hold worth more. It’s the opposite of dilution. So even if one points to GE and says, “Meh, not much organic growth,” there’s a point at which some stocks become cash machine for their shareholders.

GE has graduated beyond growth stock status and is now a reliable returner of capital.

Time for a Dividend Hike

If anything, the 3.3% yield is stingy for a company with $137 billion in cash on hand and $15 billion in free cash flow for the past 12 months. Yes, GE is a capital-intensive business, but the dividend payout right now is only 50% of free cash flow. I think the company can, and should, raise that dividend.

Is GE stock worth holding in the hope of more capital gains? The stock’s return over the past five years, when you include dividends, is almost equal to the S&P 500’s 88% total return.

This is one of those cases where the lack of apparent organic growth doesn’t matter much. GE is a great company and a “must-own” stock that consistently returns capital to shareholders. That high status makes GE a good stock to buy for regular and retirement investors alike.

Lawrence Meyers does not own shares of any company mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/ge-stock-dividend-aristocrat/.

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