GE's Increased Dividend And Share Repurchase Plan Boost The Conglomerate's Appeal

| About: General Electric (GE)

Last week, General Electric Company (NYSE:GE) increased the company's quarterly dividend by 12%, or $0.02, to $0.19 per share. The Q4 dividend is payable next year, January 25, 2013, to shareowners of record on December 24, with an ex-dividend date of December 20, 2012. In addition, GE also announced that it was increasing its existing share-repurchase plan by $10 billion and extending the repurchase plan through 2015. Prior to this increase and extension, there was approximately $4.9 billion remaining in its repurchase authorization plan, which was scheduled to terminate at the end of 2013.

General Electric increased its dividend in Q4 of each of the last two years, making this the third consecutive Q4 dividend increase and the fifth overall dividend increase in the last three years. After reducing its quarterly dividend in 2009, from $0.31 to $0.10, the dividend has grown by ninety percent to $0.19. In order to reach its pre-crisis level, GE's dividend will still have to increase by an additional 63 percent.

At the start of this quarter, General Electric sold $7 billion of bonds at an average yield of 2.58%, which is roughly 10% below the average rate paid by domestic investment-grade issuers. The company noted that it would use the funds to satisfy already existing and higher yielding debt. Replacing higher yield obligations with newer lower yielding paper should make it easier for GE to free up some of its cash flow for repurchases and dividends, among other potential uses such as increasing the net worth of the company.

The low rate can be seen as a sign the bond markets welcome GE debt. The company will likely issue more bonds in the coming quarters as more existing debt obligations come due. This should be comforting to both management and shareholders, especially considering that GE is capable of borrowing for 10 years at a rate below its dividend yield.

Last quarter, General Electric reported revenue below the average Wall Street analysts' estimates. The cause of this revenue miss appeared to be due to softening demand for healthcare equipment and jet engines from a weakening global economy. Foreign exchange rates also worked against GE and compounded the effect declining demand had on GE's revenue.

GE's revenues for Q3 were $36.3 billion, which was 3% growth from Q3 of 2011, but 1.63% below the average Wall Street estimate of $36.9 billion. Both aviation and healthcare sales declined approximately one percent from a year earlier. Despite this revenue miss and possible lowered revenue guidance going forward, GE maintained its prior outlook for earnings growth. Although revenue from GE Capital fell 5.4% to $11.37 billion, its profit rose 11% to $1.68 billion. The revenue decline within GE Capital was another cause of the revenue miss, while GE Capital's profit increase helped the parent meet EPS expectations.

Industrial profit climbed 11% to $3.57 billion and generated $24.8 billion of sales, or roughly two-thirds of GE's total revenue. Adjusted earnings from continuing operations increased by 10% to $3.8 billion, or $0.36 per share, which was in line with Wall Street expectations. Net income (including pension costs) increased by nearly 50% to $3.49 billion, or $0.33 per share, from $2.34 billion, or $0.22 in Q3 2011.

Though General Electric was not a dog in 2011, it entered 2012 with the fourth-highest dividend among the 30 companies in the Dow Jones Industrial Average. Through the first three quarters of 2012, GE was the best-performing dog, having appreciated by about 28 percent. The company declined throughout October and the first half of November, but has since rebounded rather nicely. Since the start of 2012, shares of GE have now appreciated by about 19.5 percent.

GE may not be a dog in 2013 as there is still some strong competition among Dow constituents with dividends between three and 3.5 percent. Competitors include Chevron (NYSE:CVX) and Procter & Gamble (NYSE:PG), as well as technology companies including Microsoft (NASDAQ:MSFT) and Hewlett-Packard (NYSE:HPQ), both of which also increased their dividend rates during 2012. With roughly two weeks to go between now and the end of 2012, and the extreme volatility that can be expected by equities due to fiscal cliff related fears and/or a potential resolution, making the 2013 list is still up for grabs.

Disclosure: I am long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.