General Electric (GE) has pulled back around 5% since the beginning of the month of May, approximately in line with the overall market. However, the company has made several positive announcements this week and positive catalysts should drive the stock to outperform the market.
Key recent GE highlights:
- Its finance arm will resume paying a dividend to its parent for the first time since the financial crisis. It also will pay a special dividend to GE of $4.5B. This money could be used to increase General Electric's dividend payments to its shareholders and/or to repurchase shares.
- The company is making a $700mm mining equipment acquisition in Australia. This smartly increases its footprint in this growing sector and positions it nicely to meet growing Asian demand.
- The U.S. Export - Import Bank charter is being extended and its financing ability is being increased to $140B. This will help big ticket demand internationally on the margins, which should benefit manufacturers like General Electric and Boeing (BA).
General Electric - "General Electric Company operates as a technology and financial services company worldwide". (Business Description from Yahoo Finance)
4 additional reasons GE makes sense for growth and dividend investors at under $19 a share:
- The company sports an AA+ rated balance sheet and yields 3.6%. Given resumption of dividend from its finance arm, I would look for dividend payment growth to accelerate in the coming years.
- The stock now trades for 10.5 times forward earnings, a discount to its five year average (14.1)
- It also has a five year projected PEG of under 1 (.97), which is unusual for a high yielder and sells for 6 times operating cash flow.
- S&P has a "Buy" rating and a $24 price target on GE. Credit Suisse has an "outperform" rating on the stock, and I anticipate at least one or two analysts will upgrade the stock or increase their price targets in the next few weeks on the dividend news from GE Capital.
Disclosure: I am long GE.