Given that the Industrial sector is in the middle of the pack for price performance since the early June lows, we were impressed by how well Dow Dividend Stock General Electric, (GE), has performed, outgaining the Dow Jones Industrial Average and the S&P handily:
The beaten-up Energy sector has made the most dramatic comeback of all the sectors, but is still in the red year-to-date, even with the gains from this latest rally. The Industrials sector had been in the red, prior to the summer rally, but has also reversed since early June, and is up 5.75%, as of 7/5/12:
Institutional ownership of GE is among the lowest for DOW 30 stocks, at just 54%, but that may be changing - institutional buyers increased their holdings by 1% over the past quarter. That may not sound like a lot, but considering that GE has a $186 billion market cap, with 10.6 billion shares outstanding, it's impressive.
What are buyers attracted to? In our previous article on GE, we mentioned that GE Capital had gotten approval from the Feds to pay a $475 million quarterly dividend to GE, and that it plans to pay a $4.5 billion special dividend to GE in 2012. GE's 1st quarter earnings release said that it intends to return excess cash from GE Capital to shareholders, and that the capital allocation would be "balanced and shareholder friendly", meaning a combination of dividends and share buybacks.
Dividends: After having to drop to $.10/quarter in 2009, GE has since increased its quarterly dividend 4 times, to its current $.17/share payout, and now is in the top third for dividend yield among the DOW 30 stocks.
(GE is listed in the Industrials section of our (High Dividend Stocks By Sector Tables):
GE's future earnings growth picture seems to be improving also:
Hedging your bet: Given that GE is less than 3% below its 52-week highs, if you wanted to lock in some of your gains, selling covered calls may be worth looking at.
We've listed this trade from our Covered Calls Table, which has a January 2013 out-of-the-money $21.00 call, leaving some room for further price appreciation. As always with covered calls, you balance the attraction of receiving immediate option income vs. having your shares assigned/sold away from you, if the stock price rises above the strike price near expiration, or near the last ex-dividend date prior to expiration:
Cash Secured Puts: If you don't already own GE, an alternative approach would be to go for a lower break-even cost, via selling cash secured puts, instead of buying the stock outright. Although you won't collect any dividends, you will collect an attractive put option premium up front, as opposed to waiting for quarterly dividends and potential price appreciation.
This January 2013 $20.00 put pays $1.39, roughly 4 times the $.34 dividend payout between now and January. As mentioned before however, GE may up its quarterly dividend, but it won't be anywhere near this option payout. The break-even on this trade puts you fairly close to GE's pre-June rally price of $18.15.
(You can find more details on this and over 30 other put option trades in our Cash Secured Puts Table.)
Financials: GE's margin looks OK, but its Management Efficiency ratios are a mixed bag. It does carry more debt than its peers, but it has an Interest Coverage ratio of 2.4:
Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours.