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General Electric (GE)

posted on February 23, 2012 at 6:25 pm
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In my February 3 post http://jubakpicks.com/2012/02/03/looking-for-higher-dividend-yields-and-dividend-growth-here-are-three-picks/#more-8475  I added three stocks to my dividend income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ and dropped three.

The reason, I argued then, was that the growing popularity of dividend paying stocks at a time when income vehicles such as Treasuries and CDs pay almost nothing, had created a glorious but still real problem for income investors. As investors flocked into dividend-paying shares, they drove up share prices. That was great for investors already fully invested, but for investors looking to get into new positions or for investors looking to put more cash into existing positions, it meant that yields were in constant danger of erosion. In this situation, income investors needed to look for stocks that paid higher yields now and that were also positioned—by their growing cash flows and by management disposition—to keep raising dividends. Look for those stocks, I advised, and beware dividend payers that didn’t seem to be in a position to keep raising dividends.

And with that as background I tweaked this portfolio by adding General Electric (GE), Westpac Banking (WBK) and Kinder Morgan Partners (KMP) while dropping Potlatch (PCH), Merck (MRK) and Abbott Laboratories (ABT).

Today I’m going to give you more detail on one of those adds, General Electric (and also actually make the change on the dividend portfolio page. (The rest of these six changes will follow in what I will try to make short order.)

On June 11. 2010 General Electric’s board of directors voted a quarterly dividend of 10 cents a share. That’s where the dividend had been stuck for a year—ever since in the aftermath of the financial crisis General Electric had cut its quarterly dividend from 31 cents a share in 2009.

Since June 2010, however, General Electric has raised its quarterly dividend by 70%. And the good news, for investors, is that the quarterly payment of 17 cents a share still significantly lags the pre-crisis 31 cents. You’re looking, I think, at a company that feels considerable internal pressure to get dividends back to where they were pre-crisis.

And fortunately, for dividend investors, General Electric has the cash flow to get there. Free cash flow for 2011 came to $19.4 billion—and that’s after the company’s $14.5 billion in capital spending. In 2011 dividend payments came to just $6.2 billion during the year. That’s a huge drop from the $9 billion paid out in dividends in 2009 or the $12.4 billion paid out in 2008 before the global financial crisis.

At the February 23 price of $19.31 General Electric paid a dividend yield of 3.5%. I think the company is able and willing to keep the yield at that level even if the share price climbs. (And we’d all like the price of a stock we own to go up, right?)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of General Electric as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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  • crabbyjim on 23 February 2012

    I’m way ahead of you. I added GE to my portfolio on Sept. 10, 21010 and now have a 21% gain with reinvested dividends. I suspect I will own GE for a long time and that it will only get better.

    You should have added CBI to your portfolio long ago also. It is a premier international company and has been a very profitable investment for the past few years.

  • kubiaksm on 23 February 2012

    Not sure of the logic on this move or what the objective of your dividend growth fund is?? GE is now yielding 3.5%…but I would almost bet a $1 that they will not increase their dividend by 70% over the next year or year and one/half? You coulda…shouda bought GE when it was well below $15 and had some faith that they would resume their dividend growth. Why not…likely because it wasn’t a sure thing. Why anyone would sell ABT with a current yield of the same 3.5% and an already announced increase of 6.25% and some 40 years of annual dividend increases…and trade that for GE…which recently cut their dividend by 70%…seems almost preposterous. Dividend fund…really???

  • southof8 on 23 February 2012

    to hell with stocks; I’m going to start promoting mud wrestling. First up- Kubiaksm v. Crabby. To nut grabs, hair pulling or eye gouging. First to tap out has to buy the other’s worst loser at cost. Come on, you know you have at least one loser in your portfolios.

  • Viejo on 24 February 2012

    GE is in the news with the extreme addition of the VOLT to it fleet. Is the management off the edge? Or does this have some advantage the isn’t apparent?

  • Jim Jubak on 24 February 2012

    Kubiaksm, “Recently” cut their dividend? GE cut its dividend in response to the global financial crisis and has been clawing the dividend back since them. This is a bet that GE will keep doing that. ABT is planning to split into two companies by the end of 2012. The plan is to split the dividend between the two companies too. My take is that this will keep ABT from doing much to push dividends substantially higher. I think ABT has enough at stock to keep increasing dividends–40 years and counting–but the recent 3 cents a share (6.25% increase) seems about the most you can expect looking forward. (And, ye, absolutely, in hindsight I should have bought GE at $15 and Apple at $96…)

  • Yclept on 24 February 2012

    I still see GE as primarily a bank. Their heavy rotating equipment is in low demand as large power plants are not economical to build right now. That might be a good thing since this legacy model of large-scale power generation might be on the way out anyway. I guess they’ll still be able to do alright with jet engines. I don’t expect much from their consumer goods products ever again — they simply can’t compete.

    If I take a flyer in financial stocks it’ll be in one that really pays a big dividend like MFA or NLY (both of which I owned until the beginning of this month, but dumped because I believe inflation and interest rates will be going up far sooner than the Fed is willing to admit. I expect Ben Bernanke to have to renege on his forecast of another year or two of low Fed rates.

    I think we are moving back to a market status where one will have to be concentrating on capital gain when the market is going up, and short positions when it’s going down. Regardless of the market direction, I believe inflation is going to be clawing at our guts, and a 3% or so dividend isn’t going to mollify it enough to keep these stocks at even their current prices.

    I could well be wrong. I was wrong about something once before, but I’ve forgotten what it was!

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