General Electric (NYSE:GE) is a company that has their hands in everything, from industrial manufacturing, aircraft engines, nuclear power, loans (GE Capital), land management/acquisition, and more. GE basically has a hand in the honeypot of pretty much everything you can dream of.
GE has paid its shareholders a dividend every quarter for over 100 years straight. They had a 30 plus year history of increasing dividends until 2007. GE was a solid performer for everyone's portfolio until 2008, showing stock and dividend appreciation.
Through the late 90's and early 2000's, GE's profit was largely boosted by the "GE Capital" portion of the business. GE Capital was one of the strongest financial institutions in the world, having an AAA rating which allowed them to borrow money at a lower rate and offer loans to customers at lower rates that others could not match. GE Capital financed everything, car loans in Europe, credit cards here in America, aircraft to various airlines and one big area that hurt, subprime mortgages. The billion dollar losses from WMC, along with a lack of capital, among many other things sent GE plunging.
With lack of cash on hand, GE then cut their healthy 31 cent a quarter dividend to 10 cents a share. Shares plunged to under 7 dollars a share in March 2009. Since then, GE is back to 19 dollars a share, with a 17 cent a quarter dividend. So why do I say, déjà vu, 2003?
Let's take a look at the 10 year income statement:
INCOME STATEMENT: 10-YEAR SUMMARY
Let me list the future EPS projections for GE as well:
I also say déjà vu 2003, based on the dividend of GE. In 2003, it was 19 cents a quarter (today its 17 cents a quarter), by 2005, they raised it to 25 cents a quarter. Also the stock price in January 2003 was about 24 bucks a share, going to 36 bucks a share at the end of 2005.
Also looking at past earnings, growth was very similar for GE during this time period. Why is this growth cycle not the same, as the growth cycle almost 10 years ago? 10 years ago, GE's plastic businesses, along with higher earnings from GE capital were coming in. GE was seeing a reduction in business in the infrastructure they provide. Today with GE, many of the items that were tough markets then (gas turbines, airplanes, locomotives, medical imaging equipment), are all on the upswing.
Why am I bullish about GE's future? They are moving out of the insurance and media businesses altogether, and they are banking on companies investing in their infrastructure. Going forward, GE is planning on a structure of 64% infrastructure businesses and 36% capital. GE capital services debt is down to under $40 billion, from over $100 billion at its peak. Leverage ratio has decreased to a 5:1 ratio and GE capital and GE parent both have cash on hand, which wasn't the case in 2008. GE has also been buying shares of stock back, though it's hard to make a dent into 10 billion plus shares.
Why am I bearish on GE's future? First off, their EPS has been boosted for the last many years on the GE Capital side of the business, which they are trying to make a smaller piece of their portfolio. They own land and leases that were bought for nearly top dollars during the boom in the 2000's. The company may have to take some losses in this category. There is also 120 billion dollars in their consumer portfolio. The concern is about half of that is unsecured retail debt. Any hiccup with defaults in this business (consumer, loans, airline leases), could be a giant hit to GE.
Conclusion: GE is a giant company that always makes money, even after making some questionable acquisitions or business decisions. I believe going back to their core businesses will lead GE back to excellence in the upcoming years.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours.