General Electric Company (GE) was founded in 1892 in Schenectady, New York, by Thomas Edison. It’s the only one of the original twelve components of the Dow Jones Industrial Average (est. 1896) that’s still a member. It’s hard to believe that in 2016, 120 years later, GE stock is still a smart buy.
“Really? Even after 2015? Tough to beat how GE stock did last year,” some investors might object. They’d be right: General Electric shares shot 21% higher last year, outperforming the S&P 500 by 23 percentage points.
But selling your winners and keeping your losers is no way to invest. We wouldn’t know Warren Buffett from Adam if he sold every great investment he made after 20%, 40% or even 100% gains.
If you’re looking to buy solid companies for the long term, it doesn’t get much better than GE stock. Here are three reasons the diversified industrial powerhouse is a good buy in 2016:
GE: Leaner and Meaner
Last April, GE shocked Wall Street by announcing its intention to sell off $200 billion worth of GE Capital assets, refocusing the company on its roots as an industrial goods company. It has sold off $126 billion in financial assets since then.
It’s understandable that GE stock owners would cheer the deal, which enabled the company to announce a $50 billion share buyback plan and increases its liquidity. It also makes GE stock less risky by reducing its exposure to the financial arm that almost ruined the company during the crisis.
But the benefits don’t end there: GE will direct its extra time and resources to pivot heavily into the “digital industrial” space, essentially going all-in on becoming a power player in the Internet of Things.
GE Stock Is the Cream of the Crop
Think about the fact that GE stock has been included in the DJIA for 120 years now. The OG blue-chip stock, known and trusted by the American people and investors alike. It’s weathered recession after recession, each time emerging as a world-class company.
I really think its thoroughbred status will benefit General Electric shares in 2016, when markets are in turmoil. People aren’t quite as willing to bet their nest egg on Netflix (NFLX) or Twitter (TWTR) as they were a year ago. I think we’ll see established, large-cap stocks outperform this year, as money gets scared and runs from high- and medium-risk to low-risk equities.
Low-risk equities that pay dividends should fare even better. Oh, that reminds me …
GE Stock Pays a Nice Dividend
With interest rates still abysmally low — yes, even after the Federal Reserve’s December hike — income investors are making a pittance in Treasuries. The 10-year yields about 1.83% today. That’s horrible. In most years, that’s not even enough to keep up with inflation.
In buying GE stock, not only can you reap the rewards of capital appreciation, but you’ll be paid just to sit around and wait.
General Electric currently boasts a dividend yield of 3.1%, and it’s been increasing its dividend payout annually for the past six years, ever since it got things under control after the financial crisis.
Sure, GE has some exposure to the struggling oil and gas sector, but oil prices have been in steady decline for nearly two years now — any systemic risks posed by low energy prices would’ve been revealed by now.
Needless to say, the world in 2016 is very different from the world in 1892. But all these years later, GE is still a world-class innovator and a great investment.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
