General Electric (GE), you know, that blue chip conglomerate we know so well for making everything from airplane engines and locomotives to light bulbs, toasters and everything in between. The company provides energy services, healthcare services, transportation, household appliances and, through GE Capital, provides commercial and personal lending. It seems everywhere you turn GE is providing infrastructure, technology, service, or financing to support the businesses and households all around us.
Shares of GE currently trade for right around $22. EPS is expected to grow over the next 12 months by 14%, and GE has a history of surprising to the high side with earnings. With growth in many of the company's industrial lines expected to be in the high single and low double digits, along with continued improving health of GE Capital, it appears that continued strong earnings growth may be on the horizon.
GE had to cut its dividend at the height of the housing crisis due to the devastating effect of the recession on the GE Capital unit. At the time GE Capital was contributing nearly 70% of the company's earnings. Since taking the helm at GE, CEO Jeffrey Immelt has often received criticism from many (including myself) on the slow return of GE and the large salaries and bonuses being paid to executives and board members. However, the longer I hold shares, the more and more I admire the work that has been done since he took the reins of the conglomerate.
GE has refined its business model to focus on industrials, and now GE Capital supports the operations rather than leading the company. GE has focused on targeting the markets which are likely to experience the greatest growth in the coming decades through acquisitions in GE Energy and the continued growth of GE Healthcare. Problem GE Capital assets have been shed, and the balance sheet has improved to the point where GE Capital has begun to pay a dividend back to the parent company. With the growth in EPS and the reintroduced GE Capital dividend, I anticipate a renewed commitment amongst GE management to maintain and growing the dividend at a rate well above inflation.
All of these actions lead me to believe that GE will provide continued share price appreciation and dividend growth over the coming years. Even amidst market uncertainty, shareholders who are committed for the long haul can expect to be handsomely rewarded through capital appreciation and a growing dividend that currently yields around 3%.
Obviously, there are a number of issues that can and likely will impact the price of equities over the next few months and years. From the presidential election, to the pending fiscal cliff, European and Chinese economic slowdowns, and newly initiated Fed policy of indefinite QE, lots of uncertainty exists around the state of the US and global economies. These factors lend to uncertainty in the overall direction and strength of the markets. However, based on the current strength of GE operations and the company's growth, I anticipate that with the inclusion and continued growth of dividends, the company will be able to provide market-beating returns for years to come.
Disclosure: I am long GE.