7 Point General Electric Dividend 2019 Guide (*Expert Analysis*)
Industrial conglomerate General Electric (NYSE: GE) has bitterly disappointed shareholders in recent years, especially income investors who had come to prize its once-reliable dividend. Long regarded as a safe widows-and-orphans stock, GE is now a corporate trainwreck.
GE traces its origins to 1878, when Thomas Edison tapped the financial backing of J.P. Morgan to form the Edison Electric Light Company, to facilitate development of the light bulb.
General Electric was officially born in 1892 from a merger between Edison’s company and the Thomson-Houston Electric Company. In 1896, GE was one of the original 12 companies listed on the newly formed Dow Jones Industrial Average.
In 2018, GE suffered the humiliation of getting replaced on the 30-stock Dow by drug chain Walgreens Boots Alliance (NSDQ: WBA).
With a current market cap of $90.3 billion, General Electric remains the ultimate symbol of America’s “Big Iron.” GE provides a variety of products and services in several industries, including aircraft engines, gas turbines, steam turbines, wind turbines, LED lighting, oil and gas production, digital manufacturing, and more. GE last year ranked among the Fortune 500 as the 18th-largest firm in the U.S. by gross revenue.
However, in an era of fast-moving Silicon Valley innovators, GE is widely perceived as a dinosaur. The stock has performed dismally and the company has been compelled to slash its dividend. Can GE turn itself around or is the company’s dividend doomed?
Does General Electric Pay Dividends?
GE has paid a dividend for over 100 years, but the payout has dramatically shrunk and the dividend appears under threat as the company struggles to reinvent itself and cope with deteriorating operating results.
What Is General Electric’s Dividend?
In December 2018, GE shocked investors with a big lump of coal for their holiday stockings. To prop up its sagging balance sheet, the company slashed its dividend from $0.12 to $.01 per share quarterly. The dividend will stay at the level of a penny, when the next payout goes out to investors on April 25, 2019.
General Electric had delivered a Scrooge-like Christmas the year before. In December 2017, GE cut its dividend in half to $0.12 quarterly. At the time, it was the eighth-largest dividend cut in S&P 500 history.
What’s General Electric’s Dividend History?
- Dividends per share December 2018: $0.01.
- During the past 12 months, average dividends per share growth rate: -56% per year.
- During the past 3 years, average dividends per share growth rate: -26.20% per year.
- During the past 5 years, average dividends per share growth rate: -10.70% per year.
- During the past 10 years, average dividends per share growth rate: -1.40% per year.
- During the past 13 years, the highest 3-year average dividends per share growth rate: 80% per year. The lowest: -26.30% per year, whereas the median was 10.90%.
What’s General Electric’s Dividend Yield?
GE’s annual dividend yield is 0.39%, far below the average dividend yield of 1.40% for comparable conglomerates. The current average dividend yield for the S&P 500 is 1.93%.
A stock’s dividend yield is calculated by taking the yearly dividend payment and dividing it by the stock price. For example, if the stock throws off $1 in dividends annually, and the share price is $50, the dividend yield is 2%.
The payout ratio reflects how much of a company’s net income is devoted to dividend payments. For example, if the company in a quarter generated earnings per share of $1.00 and paid a dividend of 60 cents per share, the payout ratio would equal 60%
GE’s payout ratio is 15.42%, as of fourth-quarter 2018. This low number reflects how GE is reinvesting its earnings toward organic growth, rather than dividends.
When Is General Electric’s Dividend Payout Date(s)?
GE’s next three dividend payout dates are 4/25/2019, 7/25/2019, and 10/25/2019.
Will General Electric’s Dividend Increase In 2019?
There’s virtually no chance of General Electric’s dividend increasing in 2019. Under CEO Larry Culp, GE is pulling out all the stops to enhance free cash flow, from which dividends are paid.
But General Electric’s free cash flow has been in free fall. It was $20.58 billion in 2014, $12.58 billion in 2015, -$7.44 billion in 2016, -$1.34 billion in 2017, and -$3.45 billion in 2018. The profit margin (most recent quarter) is -18.3%.
Culp plans to ruthlessly shed under-performing divisions, streamline operations, and get the company into leaner, more profitable shape.
Problem is, GE remains a sprawling and unwieldy behemoth, from jet engines to electrical generators to oil and gas development. In the wake of the 2008 financial crisis, the company experienced an existential threat as its overextended GE Capital financial division threatened to sink the entire company.
In 2008, nearly 50% of General Electric’s revenue came from service businesses. The Great Recession was a wake-up call, prompting GE to get back to its core competencies. After GE sloughed off NBCUniversal and the bulk of its financing arm, more than 90% of its revenue now comes from industrial businesses. Culp is focusing on these “core competencies” to restore earnings and revenue growth.
In February 2019, GE sold its biopharma business to medical services giant Danaher (NYSE: DHR) for $21.4 billion. Culp previously served as Danaher CEO and earned a reputation for being a shrewd dealmaker. In other streamlining moves, GE is spinning off its GE Healthcare division and divesting its stake in Baker Hughes (NYSE: BHGE) oilfield services.
General Electric continues to focus on jet engines, a forte for the company. GE built America’s first jet engine, during World War II. Aircraft engines are experiencing huge demand in both commercial and military sectors. That’s one bright spot for GE. But it probably won’t be enough to offset the company’s flagging fortunes in other sectors.
The worst culprit for GE’s woes is its power business, which makes turbines that generate electricity at power plants. This segment has suffered amid plummeting global demand for power-generating equipment.
How did the once-mighty GE fall from glory? This video summarizes the grim tale of GE’s decline.
GE can trace its woes to the cult of personality that grew around former CEO Jack Welch, fueled by fawning press coverage. When Welch took over in 1981, GE’s traditional businesses, such as lighting and home appliances, weren’t growing fast enough to suit him. He diverted resources away from manufacturing and into services, notably the company’s GE Capital financing arm.
Welch combined his strategic redirection with consistent layoffs, earning him the nickname “Neutron Jack” (for eliminating employees while leaving the office buildings intact). It all worked like a charm and boosted the stock price, making Welch a business folk hero. That is, until the financial collapse of 2008 laid bare the weaknesses of GE Capital.
As billionaire super investor Warren Buffett once said: “Only when the tide goes out do you discover who’s been swimming naked.”
Much of GE’s success under Welch, and its subsequent problems, derived from a heavy reliance on the company’s huge and leveraged financial services business. These activities became an albatross during the financial crisis.
Welch was replaced in 2001 by Jeffrey Immelt, who dismantled Welch’s legacy by selling off NBCUniversal and big chunks of GE Capital. In 2017, Immelt was replaced with great optimistic fanfare by John Flannery.
Flannery didn’t last long. In 2018, Flannery was replaced by Culp. The desperation in GE’s management suite is palpable.
Will General Electric’s Dividend Be Cut In 2019?
Some analysts are now calling GE a value play. The stock sports a forward price-to-earnings ratio (FPE) of 11.2, considerably cheaper than most of its peers and a deep discount compared to the FPE of 17.5 for the S&P 500.
On the contrary, I regard GE as a “value trap.” Don’t fall for the bait.
GE underwent a litany of calamities in 2017, which drove down its share price by 45%. GE was the worst “Dog of the Dow” in 2017, an otherwise banner year for the broader market. GE underperformed the S&P 500 and the Dow Jones Industrial Average by 71% and 79%, respectively. Ouch.
This disastrous performance included GE’s second dividend cut in eight years, a crushing blow to income investors who had come to regard GE as a blue chip growth-and-income stalwart. I can’t rule out the possibility that GE will completely eliminate its dividend.
Once considered a buy-and-hold forever stock, GE is now a cautionary tale that no company stays on top forever.
John Persinos is the managing editor of Investing Daily.