General Electric’s (NYSE:GE) announcement last week that it would keep its dividend at 1 cent per share seemed like a win for the bulls. But after reviewing the GE stock chart, I believe buying shares today will prove to be a costly “pretty penny” for investors.
It has been a good year for General Electric stock. Shares are up nearly 52% compared to the Dow Jones Industrial Average’s 20% return. That’s big. Within the index, only Apple (NASDAQ:AAPL) has a strong year-to-date gain at 70%.
Somewhat fitting, this performance comes a year after GE was unceremoniously axed from the market average as financial challenges sent shares tumbling more than 55% over the prior two years.
Dow Drops General Electric
To be certain, there were fair reasons for removing one of the Dow’s oldest members. With shares near $13, GE’s limited impact on the price-weighted, blue-chip barometer was one issue. And that would still be a problem today. Even with GE stock’s massive rally, shares are fetching just over $11. Consequently, its influence on the index would be even slighter today.
Dropping General Electric stock also allowed the Dow to further diversify. By replacing shares with Walgreens (NASDAQ:WBA) the blue-chip index is now more strategically positioned in the growing consumer and healthcare sector. Ironically, WBA stock is the Dow’s worst performer in 2019 after trimming more than 14% of its market capitalization.
You might be thinking that General Electric’s snub was only a costly one for the S&P Dow Jones. But resist the temptation. Shares did fall as low as $6.13 by late December of last year. And other than the financial crisis, GE stock hasn’t been that cheap since 1996. Logically speaking, this means most shareholders are still underwater.
The other truth is General Electric’s 1 cent quarterly dividend also fails the litmus test for blue-chip investments. Don’t get me wrong. The dividend is good news within the framework of the company’s turnaround. But the payout still pales next to the Dow’s lowest income distributor Visa (NYSE:V). The financial services giant offers shareholders a quarterly distribution of 30 cents. That’s a return of 0.7% annualized.
And to state the obvious, General Electric stock’s meager dividend definitely can’t be used in the same breath as top dog Exxon Mobil’s (NYSE:XOM) 5.1% payout.
Still, the biggest problem for GE stock right now is the price chart.
GE Stock Price Weekly Chart
For General Electric bulls who’ve enjoyed this year’s rally to its fullest, it’s time to take profits. And for investors interested in purchasing shares following the company’s reassuring dividend news, waiting for a likely and opportunistic pullback makes sense. Since establishing a bottom this past year, GE stock has put together a bullish channel. I’ve detailed this price action on the provided weekly chart. That’s the good news. Short term though, shares have a couple meaningful strikes against them which strongly suggests GE will trade lower in the coming weeks.
Of immediate concern are GE stock’s stochastics. The indicator has generated a bearish crossover signal in overbought territory. Stochastics on the monthly chart are also overbought. At the same time shares have begun to turn lower after an unsuccessful challenge of channel resistance. In total, this combination increases the odds of a larger counter-trend pullback in the GE stock price before shares eventually turn higher.
If General Electric does begin to trade lower, $8.50-$9.75 is an area of technical interest. This zone holds a couple layers of channel and Fibonacci support where a fresh higher-low pattern to confirm the uptrend might reasonably form. For the time being, that’s where I see GE stock bringing really good things to life for investors.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits