General Electric Co (GE
) is the largest U.S. infrastructure, finance, and media conglomerate with a $172.43 billion market capitalization and over 300,000 employees in 100 countries worldwide. Additionally, GE, which traces its beginnings to Thomas Edison, is the only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896, as well as the fourth best global brand according to BusinessWeek
Last Friday, GE's Board of Directors announced a 20% dividend increase with a per-share payout to 12 cents a quarter from 10 cents. The company also emerged from the global recession with a hoard of cash and will resume stock buybacks sooner than predicted. According to Jeffrey Immelt, Chairman of the Board and Chief Executive Officer:
We are able to restore the GE dividend at a historical payout level for 2010 earlier than previously anticipated and to extend our share buyback program because of continued strong cash generation, recovery at GE Capital, and solid underlying performance in our Industrial businesses through the first half of 2010. In addition, the Company continues to plan on capitalizing on strategic and financially attractive inorganic growth opportunities.
Amid the intense uncertainty of the global financial crisis, GE cut their dividend as a result of their exposure to the financial markets brought by their operating subsidiary GE Capital. However, the dividend cut showcased management’s long-term motivation and safeguarded future growth for shareowners although it brought short-term “death” to GE share prices.
Apparently, the worst is behind GE in financial services, and the GE Capital franchise seems to be a smaller but still meaningful contributor going forward. In addition, despite their large financial services exposure, GE weathered the crisis without participation in TARP. While their “Triple-A” bond rating was cut, they remained at a strong “Double-A” resulting in reduced reliance on commercial paper and decreased dependence on long-term debt. Highlighting GE Capital, Mr. Immelt displayed his support for the franchise in his annual letter to shareowners:
A number of our finance company competitors disappeared during this crisis. We extended $150 billion of credit, with a significant portion of it going to small and medium-sized businesses. GE Capital Finance earned $11 billion in 2008-2009 and never had an unprofitable quarter during this period.
Historically, GE has operated with very little cash on hand. Now, it appears as if they have developed a more conservative cash profile to better prepare for volatility. Consequently, with the dividend increase and strong financial performance, these practices look as if they will continue even as the economy improves.
Disclosure: Long GE