Is It Time To Purchase High-Yielding General Electric?

Mar. 2.14 | About: General Electric (GE)

The last time I wrote about General Electric Company (NYSE:GE) I stated, "…I'm going to actually pull the trigger on this particular name in the face of this market pullback." Since the last article, it popped 1.35% versus the 4.3% gain the S&P 500 (NYSEARCA:SPY) posted. General Electric is a diversified technology and financial services company operating in the segments of aircraft engines, power generation, industrial products, water processing, household appliances, medical imagine, and business and consumer financing.

On January 17, 2014, the company reported fourth-quarter earnings of $0.53 per share, which were in-line with the consensus of analysts' estimates. In the past year, the company's stock is up 9.83% excluding dividends (up 13.07% including dividends), and is losing to the S&P 500, which has gained 22.48% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the industrial sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.09, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.06 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.81 per share and I'd consider the stock inexpensive until about $27. The 1-year PEG ratio (2.62), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 6.53%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

02Oct13

24.17

17.26

13.36

1.81

27

1.92

8.98

16Dec13

26.98

19.27

15.51

1.74

26

3.06

6.30

01Feb14

25.13

16.87

13.81

1.82

27

2.46

6.87

02Mar14

25.47

17.09

14.06

1.81

27

2.62

6.53

Click to enlarge


Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.46% with a payout ratio of 59% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3.1%, 16.6% and 5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.46% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

02Oct13

3.14

54.0

2.1

11.5

2.8

16Dec13

3.26

62.8

2.1

11.3

2.8

01Feb14

3.50

59.0

3.1

16.6

5.0

02Mar14

3.46

59.0

3.1

16.6

5.0

Click to enlarge


Technicals

Click to enlarge

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in middle-ground territory with a value of 51.73 and upward trajectory since early February. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars slowly increasing in height, indicating slow bullish momentum. As for the stock price itself ($25.47), I'm looking at $25.76 to act as resistance and the 20-day simple moving average (currently at $25.04) to act as support for a risk/reward ratio, which plays out to be -1.69% to 1.14%.

Recent News

  1. The company is looking to sell its fuel dispenser unit for about $500 million. The unit doesn't contribute much to GE's top line and is looking to make some money in a transaction so it can continue to build on the oil services division.
  2. The company will pay $1.7 billion to Japan's Shinsei bank to end liability. The liability is due to a loss-sharing agreement back in 2008 whereby GE Capital sold its Japanese properties to Shinsei for $5.4 billion.
  3. The company will invest $1.4 billion for new distributed power division. The thought behind this division is to provide on-site power systems that are easier to finance, quick to install, and are more reliable.

Conclusion

This is a very slow moving battleship of a company. I don't believe you will be making quick money in it but will be able to grab some dividends along the steady march upwards in the stock price. Fundamentally, the company is inexpensively priced based on future earnings but expensive on future growth potential. Financially, I believe we have a high yield that is secure. On a technical basis I believe we are in the middle of the move up. Due to the inexpensive fundamentals, slightly bullish technicals, and the high yield, I'm going to actually pull the trigger on this particular name but only for a small batch.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long GE, SPY. 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.