When looking for the best dividend stocks to buy, investors tend to focus on stocks with mammoth yields or companies with lots of sex appeal.
General Electric Company (NYSE:GE) doesn’t really have either, with the conglomerate focused on boring industrial operations and yielding a good but unspectacular 3.7%.
But the best dividend stock is one that goes up over time in addition to protecting your capital and providing a fair yield, and a company that will consistently raise its distributions over time.
That description fits GE stock to a T.
Some investors can’t get past the pain of a recession-era dividend cut from General Electric, and the fact that even now, GE stock is paying less in quarterly dividends than it was in 2008 before the financial crisis.
But here are a few big reasons you should consider an investment in General Electric stock right now:
Strong GE Earnings: GE had a good earnings report, hitting expectations with 4% sales growth and beating on the bottom line. That makes a full year where General Electric either met or exceeded its earnings targets. Orders were up nicely across the board, particularly in its booming healthcare division. Equally important is strong guidance from GE, with predictions of double-digit earnings growth in its industrial division.
GE Is Restructuring to Cut Costs: The General Electric earnings beat and revenue growth admittedly weren’t enough to set the world on fire. But the long-term trend is improving and will only get better in coming quarters as GE refocuses and restructures. Efforts include spinning off consumer financial services company Synchrony Financial (NYSE:SYF) as well as a $17 billion acquisition of energy grid businesses from French multinational Alstom (OTCMKTS:ALSMY) and the sale of its consumer appliances biz to Electrolux (OTCMKTS:ELUXY) for $3.3 billion.
Long-Term Energy Opportunity: Admittedly, energy operations have been challenged at GE — and for many other publicly traded stocks, too, given the headwinds for crude oil in 2015. But oil won’t stay around $50 forever, as evidenced by a recent uptick in prices, and GE continues to expand its operations and plow money into R&D at the perfect time for better pricing and active energy exploration in the coming years. Oh, and let’s not forget the impressive renewables and nuclear businesses that GE operates as the world continues to focus on carbon emissions and clean energy alternatives.
Attractive Valuation: General Electric is trading for a forward price-to-earnings ratio of about 13.5 right now. Compare that with an average forward P/E of about 16.6 for the 30 components in the Dow Jones Industrial Average right now, or a forward P/E of 17.2 for the S&P 500. And given the company’s track record lately of beating earnings, that makes GE’s forward earnings multiple even more attractive. Additionally, GE trades for only a slight premium with a price-to-book ratio of 1.8, making it one of the best in the Dow 30; the average price-book for is about 3 currently.
Real Assets: Speaking of book value and assets, many investors are surprised to learn that General Electric boasts more than $140 billion in cash and investments! This, along with its tangible property like machinery, gives GE more than $650 billion in total assets. Remember this the next time you wonder how to value your favorite risky mobile play or biotech stock that is riding only on dreams and a few good ideas.
Dividend Potential: AI started this article with the promise of the best dividend stock — and that’s where GE really shines. GE has paid dividends consecutively since 1899. And while some shareholders still are upset about the massive cut in distributions in 2009 as a result of the financial crisis — from 31 cents a share to just 10 cents a share — distributions have more than doubled since then back to 23 cents a share. Dividends are only running at about half of profits right now, meaning they are both sustainable and eligible for future increases … not bad, considering GE stock already yields about 3.7% at current prices.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
