General Electric (GE) has gone from bright to dim and back to bright again since hitting its peak in 2000. The company's largest headwinds have stemmed from its financial segment, GE Capital with the fallout from the financial crisis. However, this segment and the company have been on the road to recovery in the past few years.
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The company has improved its total liabilities figures in the past few years. Total liabilities were reduced from $693 billion in 2008 down to $600 billion for 2011. GE still has a large total debt of $442.8 billion compared to total cash of $83.65 billion. However, operating cash flow is a healthy $32.13 billion and free cash flow looks good at $43.31 billion. This shows that GE can more than cover its 3.4% dividend, which amounts to $7.2 billion in payments.
General Electric's short term debt is in fine shape. The company has more than twice the amount of current assets than current liabilities as reflected in its current ratio of 2.09. Therefore there should be no issue with GE paying off its short-term obligations.
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The stock is trading at only 1.77 times book value per share, giving it an attractive valuation. The forward PE ratio is currently 11.52 and the PEG ratio is 1.04.
GE is expected to grow earnings annually at 12.67% for the next five years. When combining the 3.4% dividend with the expected growth, the company should provide investors with a total CAGR of 16%. Therefore, if dividends are reinvested, a $5000 initial investment in GE should reasonably grow to be worth at least $10,000 in five years. This alone is quite illuminating, but I have an additional idea.
For those interested in starting a new position or adding to your current position, consider selling a put option. I would look out to August 2012 expiration and sell the $20 put for about $57. The $57 is credited to your account. If the stock remains above $20 by expiration, you keep the $57 premium. If the stock falls below $20, you can exercise the option and purchase 100 shares of GE at a discount to the current price. For those investors who already have a position, the $57 can be considered an extra dividend payment. It's like getting another 2.9% dividend payment. Now that is quite illuminating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
