I’ve read several articles which tout General Electric as a good large cap dividend stock. Here are just two examples of lackluster initial analysis.
Gurufocus.com ran an article April 3rd, 2012 on “High-Dividend Yielders for 2012”. General Electric (GE) was one the five stocks recommended in the article. Apparently the author of the article thinks that a 3% dividend yield is a high dividend. I think that a stock needs to yield at least 6% to be considered a high dividend stock.
http://www.gurufocus.com/news/170209/5-highdividend-yielders-for-2012
The author has this to say about GE:
General Electric (GE) – General Electric has performed well over the last few months and the stock is up about 13%. It has a trailing price to earnings ratio of about 15.8 which puts it a little higher than the market multiple so it is not a great bargain, but its 3.6% dividend yield is quite a bit higher than that of the market. Also, with a payout ratio of only 50% investors can sleep well knowing that it is safe. General Electric is unique but can probably be best compared to Siemens AG ADR (SI), which is a much smaller company with a market cap of only $88 billion compared to GE’s $207 billion. Siemens looks a little cheaper at first glance with a trailing 12 month price to earnings ratio of 11.5 compared to almost 16 for GE as noted above, but GE has significantly higher gross margins and operating margins at 37.9% and 12.1% respectively. A good article detailing GE’s current situation can be found here. The stock trades at a price that is near its 52 week high of $20.85 and is not cheap as mentioned above. However, it is a great company that will offer yield-starved investors a place to earn a decent yield and I would be a buyer at $19 per share or less.
Seeking alpha contributor, DividendInvestr, wrote the article titled “7 High Dividend Large Cap Stocks For Income Investors”
http://seekingalpha.com/article/485891-7-high-dividend-large-cap-stocks-for-income-investors
He had this to say about GE:
6. General Electric Company: General Electric Company operates as a technology and financial services company worldwide. GE recently traded at $19.49 and has a 3.5% dividend yield. GE lost 1.7% during the past 12 months. The stock has a market cap of $206.2 billion, P/E ratio of 15.9 and Total Debt/Equity ratio of 3.89. GE also had an EPS growth rate of -7.2% during the last five years. Ken Fisher holds the largest position in GE with his $397 million investment. Ken Fisher reduced his position in GE by 30% during the last quarter of 2011.
Read on to see when GE was a contrarian stock worth buying.
General Electric (GE)
Price: $19.01
Shares: 10.58 billion
Market capitalization: $201.15 billion
What does the company do – General Electric is a diversified manufacturer and is organized into four segments: technology infrastructure, energy infrastructure, home and business services, and capital services. Financial services accounted for 25% of the firm's profit from continuing operations in 2010.
Morningstar’s take - General Electric positions itself to be a leader in all markets in which it competes. After shedding underperforming businesses during the past few years, the firm has energy infrastructure square in its sights. We believe GE will emerge as a leader in the power infrastructure market, which will be the backbone for the firm's growth.
Preferred stock: GE paid $1.031 billion in preferred dividends last year. They reported that they retired the preferred dividend on their 4Q 2011 earnings webcast.
Bonds: $112.6 billion outstanding. That is a really ugly bond chart. GE loves issuing debt.
DIVIDEND RECORD: Not good because of their huge dividend cut in 2Q 2009. GE cut the dividend from $0.31 to $0.10 quarterly. They have since increased the dividend to $0.17 quarterly at the present time.
Dividend: $0.17
Dividend yield: 3.6% ($0.68 annually/$19.01 share price)
Dividend payout: 55% using 2011 earnings of $1.23 –OR- 48% using the average adjusted earning power of $1.41
EARNING POWER: $1.41 @ 10.58 billion shares
(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)
EPS | Net income | Shares | Adjusted EPS | |
2007 | $2.17 | $22,208 M | 10,218 M | $2.10 |
2008 | $1.72 | $17,335 M | 10,098 M | $1.64 |
2009 | $1.01 | $10,725 M | 10,615 M | $1.01 |
2010 | $1.06 | $11,344 M | 10,678 M | $1.07 |
2011 | $1.23 | $13,120 M | 10,620 M | $1.24 |
Five year average adjusted earnings per share is $1.41
Consider contrarian buying below $11.28 (8 times average adjusted EPS)
Consider value buying below $16.92 (12 times average adjusted EPS)
General Electric (GE) is currently trading at 13.5 times average adjusted EPS. This is stock is priced for investment.
Consider speculative selling above $28.20 (20 times average adjusted EPS)
BALANCE SHEET – GE is a company in decline and the balance sheet shows it. The balance sheet is not strong. GE forgot how to compound shareholder equity. The entire balance sheet should remain suspect because of the bailed out GE Capital.
Book value per share: $11.00 ($116.438 B equity divided by 10.58 billion shares = $11.00 per share)
Tangible book value per share: $3.00 ($116.438 B equity - $72.625 B goodwill - $12.068 B intangibles = $31.745 B tangible book value divided by 10.58 billion shares = $3.00 per share)
Price to book value ratio: 1.73 (under 1.0 is good)
Price to tangible book value ratio: 6.33 Horrible!!
Current ratio: 2.29 latest quarter (over 2.0 is good)
Quick ratio: 2.21 latest quarter (over 1.0 is good)
Debt to equity ratio: 2.16 (lower is better) Notice all the red above the green on the balance sheet chart. They love debt.
Percentage of total assets in plant, property, and equipment: 9.17% (the higher the better) Wow! That number really shocked me. I though GE was an industrial conglomerate with a large percentage of its assets in net PPE. 10 years ago they were at 8.21% net PPE. Current assets comprise 63.18% of total assets (42.87% accounts receivable & 18.39% cash equivalents), other long term assets comprise 15.85%, and intangibles made up 11.81% of total assets.
The working capital trend is up.
CONCLUSION – As usual, the best time to buy GE in recent years was in March 2009. It was a contrarian investment back then at $7.06 per share. General Electric was a steady dividend payer and grower from 1987 to 2009, but then they panicked and cut the dividend from $0.31 to $0.10 quarterly. GE had plenty of retained earnings to continue to pay the dividend during the recession of 2009. I think they really damaged their reputation as a dedicated dividend payer. They pay a modest dividend and are cautiously growing the dividend since the cut. The stock is still priced for investment at 13.5 times average adjusted earning power. But the coming worldwide double-dip recession will drag the price of the stock back down to value pricing territory. The balance sheet is weak when you look at increasing debt and a lack of shareholder equity growth, the price to tangible book value ratio is just horrible, and the net assets in property, plant, and equipment. I would ignore this stock until if falls below $13.00. Those are some key support levels from June 2010 and September 2011.
GE Capital owns Greek bonds!! Complete idiots are running that part of the company. Enough said.
DISCLOSURE – I don’t own General Electric (GE) and I would never own it as long as GE Capital is part of the company.
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