Around here we call that a win.
General Electric is like a baseball team that is always predicted to win the pennant, but somehow never gets out of the second division. Under Jeff Immelt, it has turned itself inside-out to become much like what it was a century ago, a company that builds big engines to capture fuel and burn it.
You will still find GE stock bulls here and bless their heart. General Electric is a great old American company with thousands of employees, and retirees, depending upon it.
But I’m done, and unless you’re really into yield, you should be done, too. Here is why.
Leaving GE Stock
Immelt has been running the company for over 15 years now and GE stock is still trading below where it was when he started. It’s also 25% below its 2007 peak.
After years of pounding the table for the stock, Jim Cramer finally threw in the towel this month, saying after an interview with Immelt that if General Electric fails to hit its 2017 targets it will become a “must not own.”
The 2017 goals are modest, organic growth of 3% to 5%. The result would be a nice little yield stock, but one that has no excitement.
For all of General Electric’s talk about becoming a software company with Predix, its industrial Internet of Things platform, technology remains a very small piece of the business. Even if Predix were to hit its goal of $15 billion in sales for 2020, that would still be barely 10% of the current company.
Buying ServiceMax, in November, for $915 million, and consolidating the field service management arena, doesn’t change that underlying reality. Linking software and services to sales of big ticket engines doesn’t change the fact that the money still comes from the engines.
That market is declining, and GE is a big reason why. When you make machines more energy efficient, when you make capital last longer, you eventually slow the replacement cycle. Things aren’t broken, why fix them?
General Electric is big in wind power, too, but that doesn’t change the fact that the vast majority of the company’s energy operations are focused on fossil fuels, especially after the Baker Hughes deal. Immelt has been proclaiming the future while buying the past.
The GE Dividend Opportunity
There is an opportunity here, but it is limited to investors seeking income, retirees and those with the patience to watch paint dry.
Under Immelt, General Electric has proven to be a reliable payer of dividends. Over the last five years, for instance, those dividends have increased by nearly 50%, from 17 cents per share to 24 cents. Most years, GE’s earnings should clear those dividends rather easily — in 2016, it paid out 93 cents per share to investors while earning $1.
This means that the GE dividend is currently yielding 3.24%, against a 10-year bond rate of 2.4% and a 30-year bond rate of 3.02%. If you are seeking retirement income, you get a better deal with General Electric shares, especially if your income is modest (dividends are taxable income) than with U.S. government paper. And GE stock might go up. As referenced earlier, Richard Saintvilus, an InvestorPlace contributor I trust, thinks it may rise 20% this year.
If he’s right you have a bargain, even before Immelt retires and someone else gets the chance to turn General Electric inside-out again.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.