Shares of General Electric (GE) the diversified industrial company ended Friday's trading session unchanged. The company had some pleasant news for shareholders, including a dividend hike and an increase of its current share repurchase authorization.
Good News Show
Just before the end of the calendar year, General Electric announced that it will boost payments to shareholders. GE announced a 12% hike in its quarterly dividend to $0.19 per share. The company furthermore increased its existing share repurchase authorization by $10 billion. Consequently, GE has roughly $14.9 billion under its current share repurchase authorization. The board of directors furthermore lengthened its plan until the end of 2015.
Chairman and CEO Jeff Immelt commented on Friday's announcements, "We are pleased to increase GE's quarterly dividend for the fifth time in three years. In addition to investing in long-term growth, returning cash to our shareholders remains a top priority. Coupled with out strong outlook, today's announcement underscores our balanced and disciplined approach to capital allocation."
General Electric ended its third quarter with $8.4 billion in cash and equivalents, excluding the holdings of the financial unit. The company operates with $12.1 billion in borrowings in the industrial unit for a net debt position of $3.7 billion. GE Capital operates with over $420 billion in short and long term debt.
For the first nine months of 2012, General Electric generated revenues of $108.0 billion. The company guided for full year revenue growth of 3%, implying annual revenues to come in at $151 billion. Net income is expected to come in around $13 billion this year.
The market currently values General Electric at roughly $227 billion. This values the firm at 1.5 times annual revenues and 17-18 times annual earnings.
The 12% dividend hike of its quarterly dividend to $0.19 per share, raised the dividend yield to 3.5%.
Some Historical Perspective
Year to date, shares of General Electric have risen some 20%. Shares steadily rose from $18 in January to highs of $23 in October of the year. Shares fell back in recent weeks, currently exchanging hands at $21.60 per share.
General Electric's share price has suffered from GE Capital's massive exposure during the financial crisis. Shares traded in the low forties in 2007, falling to lows of $6 during the financial crisis in 2009. Shares steadily recovered to low twenties at the moment. Between 2008 and 2012, General Electric reported a 20% decline in annual revenues to an expected $151 billion this year.
General Electric continues to make progress with its transformation phase. Under command of CEO Jeff Immelt the company tries to move away from the financial business, GE Capital, which almost bankrupted the company during the financial crisis. The company now focuses much more on growth areas including the firm's energy and aviation business. The natural gas revolution in North America is beneficial given GE's operations in the field.
Rather than focusing on growing revenues, the firm focuses on improved profitability and boosting shareholder returns. Revenues are still down compared to levels before the financial crisis, while margins have been improving.
As operating cash flows are improving, and the firm continues to de-leverage, shareholders have room for increased returns. The dividend hike boost the dividend yield to over 3.5% per annum. The total repurchase authority allows the firm to retire roughly 6.5% of its shares outstanding until the end of 2015. As such, the dividend yield and repurchase yield combined could yield approximately 5.5% in the coming three years.
The increase in the repurchase plan is decent, but nothing spectacular. The almost $15 billion plan allows the firm to repurchase roughly 100,000 shares per trading day in the coming three years. This is rather small compared to average trading daily volume of 40 million shares, and the support to shares will be limited.
Commentators on this blog who expect shares to double in the coming year are overly optimistic. Valued at 17-18 times annual earnings, and paying an attractive yield, shares are a decent addition to any long term portfolio. Shareholders should expect modest capital gains as shares are fairly valued, but not significantly undervalued. I don't expect to see shares returning to levels around 2007 anytime soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.