Dividend Increase: General Electric (GE)

GE has announced their 2017 dividend increase for Q1.  The new quarterly dividend will be $0.24, from last years $0.23,  representing a 4.35% increase year over year.  This represents a dividend yield of 3.01% based on Friday’s close of $31.88.

The $0.01 increase falls in line with my expectations for 2017 as GE continues to clean up its balance sheet from 2008.

Unfortunately, this represents a dividend increase streak of just 1 year, as 2016 so no increase for shareholders.  Prior to 2016, GE had a 6 year streak as it rebuilt from it’s tragic 2008 debacle that saw it lose dividend aristocrat status.

Dividend History

As, I’m slowly building up my dividend database, I figured going back to 2005 would be interesting to look at GE’s dividend history.  It captures the end of the dividend streak, the dividend being slashed in 2008, and then the rebuilding years after the collapse.  Prior to 2008, you see a brief history of dividend growth of +10%.  GE Capital was a huge part of earnings growth for GE through the 90’s and mid 2000’s, but also brought the Wall Street darling that the house of Jack built to its knees.  What was once it’s greatest asset, became a huge liability for the company, dragging earnings down for the company.  2008 saw the company stock dropping to the single digits (I remember picking some up around $7) and also slashing the dividend from $0.31 down to $0.10 in 2009, a 67% drop to the dividend.  Post 2008, GE has rebuilt and gone back to its more industrial roots. From 2010 through now (excluding 2016), the dividend has slowly grown back.  Unfortunately the dividend still has more need for growth to get back to $0.31.

Todays post is a good lesson about geometric mean.  I want to point your attention to the 5.28% average growth in the dividend (% change QTR) and the 3.79% annual change in the payout of the dividend.  Those are arithmetic averages.  It’s what I have used on just about every spreadsheet I’ve built, and it’s been fine, until now.  The huge drop in the dividend in 2009 is being greatly understated.  Look at the dividend in 2005 of  $0.22 and the current 2017 dividend of $0.24.  The dividend has hardly grown over that time frame.  The arithmetic average is not even weighing the 2009 cut.

So, instead I just calculated the geometric mean (by hand) to give a more accurate picture of the growth rate of the dividend.  Solving for the mean this way, we get an annual growth rate on the dividend of just 0.00728155%.  So 7 basis points, pathetic.  The annual payout on the dividend has the same story, an anemic 0.00728292%.  Remember, GE was once considered a dividend darling that retirees could put money in and collect a safe dividend. Streaks are made to be broken, and the mighty can fall.

For those curious about calculating geometric mean by hand:

Geometric Mean= {[(1+r)x(1+r)x(1+r)…^(1/n)] -1}

GE vs S&P500

I wish I had good news on stock performance vs the S&P500 going back 10 years, but that’s not the case.  GE trails the S&P500 by about 75%.  GE’s fall in 08-09 was that bad.  To look at it from a positive potential, they still have a lot of room for improvement.  Actually my saving grace on owning GE was going balls deep in the stock at $7 in 2009.  Without that trade, I’d be deep in the hole on the general, but because of that purchase I’m pleasantly positive.

Company Info:

Market Cap: $282 Billion

Beta: 1.22

Dividend Yield: 3.01%

PE Ratio 27.41

Profit Margin: 9.31%

Total Cash: $10.59 Billion

Total Debt: $149Billion (yikes)

Payout Ratio: 105%

Fuck, that debt is massive.  I like clean balance sheets, and this is a bit scary.  Payout ratio indicates all profits and then some are being paid to shareholders, but free cash flow is still pretty solid.  For GE to get back to its glory days, that debt has to be cleaned up.

Conclusion:

GE still has room for improvement.  Free cash flow will support the dividend, but there isn’t really any room for big growth on the dividend.  If you were looking for a large industrial company for your portfolio, I wouldn’t be adding GE today.  A pullback below 30 or even 29 yes.  In the mean time, MMM looks better with it’s leaner balance sheet and low payout ratio, allowing for more growth on its dividend (which should be announced in the next 30-45 days).

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