Earth to GE: Boost Your Dividend

Includes: EMR, GE, UTX
by: Low Sweat Investing

GE, of course, stands for either General Electric (NYSE:GE) or Generally Embarrassing, depending on when and if you bought the stock, and whether you’re a member of the company’s top management team.

And GE has been spinning in its own strange orbit, including spinning off anything that isn’t pinned down by gravity. Meanwhile, CEO Jeff Immelt went from silver-haired CEO to silver-tongued devil earlier this year by spacing-out with investors and his Board on the company’s fateful 2009 dividend cut.

So purely in the interest of being helpful, I am trying to beam a message into their orbit, in hopes of reaching them before their next dividend declaration. That declaration should come within a few days, and the December declaration has historically included a dividend increase.

OK, let’s give it a try.

“Hello, GE? Stand by for an important transmission from Earth. I repeat, stand by for an important transmission.”

We can run through a few key facts while we’re waiting for GE to respond. Knowing them, it might take a while.

First, let’s turn back the clock to late February 2009. The GE Board announced the world famous dividend cut, down to 10 cents a share quarterly from the 31 cents it had grown to, a result of more than three decades of annual increases.

But it didn’t seem the cut was intended to be permanent.

The Board’s carefully worded press release said the cut was “effective for the second half of 2009.” Done. Reduced dividends were declared and paid twice during the second half of 2009, and the December declaration will be payable in January 2010.

Further, shortly after the cut was announced, CEO Immelt said it was in response to a “global economic environment” that “continued to deteriorate” and to “continued uncertainty related to the government’s response to the crisis.”

Maybe this would be a good time to beam up a message.

“Earth to GE . . . There are still many problems on our planet, but conditions have greatly improved. Am assuming your cuts included newspaper subscriptions and internet access. News flash: conditions on Earth have improved.”

No response. Let’s keep going on our end.

Amid the continuing deterioration and uncertainty of early 2009, GE calculated the second-half dividend cut would save over $2.2 billion of cash per quarter, about $9 billion annualized.

As the second half of 2009 is ending, GE has about $61 billion (and growing) of cash and equivalents on its balance sheet. It had about $50 billion (and shrinking) when it made the dividend cut. GE’s cash flow from operations has been positive for the past two quarters, and its Q3 dividend consumed 45% of quarterly net earnings and less than 14% of operating cash flow.

And GE beat EPS estimates by double-digit percentages every quarter so far this year, so while the company’s early 2009 wariness is understandable, the gloom was likely overdone. Finally, based on GE’s latest quarterly results, Morningstar analysts see the company “deliberately stepping out of the recession.”

And what about those asset sales? Looks like about $1.8 billion coming in from the fire sale to United Technologies (NYSE:UTX) and $8 billion more from the pending NBC-Universal deal with Comcast.

OK, time to try again.

“Earth to GE . . . Our system of numbering has not changed. Still using same numbering system as in early 2009. Check your digits, GE. I repeat . . . planet uses same numbering system as before. Check your digits.”

Not getting through to them. Maybe they stepped outside for a smoke.

Anyway, here’s more.

The dividend cut was a painful embarrassment for the proud decades-long dividend culture at GE, and other investment choices in their industry have rocketed past them.

The Investor FAQ section of the company’s website actually hides the dividend cut in a “question” asking when GE last increased its dividend. And at the time they cut it, GE also rationalized that even with the reduction its dividend was still “attractive.”

Maybe it was, but sector choices like Emerson Electric (NYSE:EMR), which yields 3.2% to GE’s 2.5%, and United Technologies (UTX), yielding 2.3%, kept raising their dividends right on schedule, so GE’s dividend attraction is hardly magnetic now. And the stock has underperformed EMR and UTX over the trailing 1-year, 2-year and 5-year time periods.

OK, one last try.

Earth to GE . . . Stand tall, fellas. Let me talk you through this. Boost your dividend, GE. I repeat . . . Earth to GE, boost your dividend. You are fading, GE, boost your dividend. GE, you are fading . . .”

Well, I kept trying but to tell you the truth I don’t I think I got through to them. I guess we’ll know for sure in a few days.

By the way, for those who think it’s a little spacey even to suggest GE would consider a dividend increase, consider this.

The Wall Street Journal reported that Immelt (sure, as if he knows what’s going on) said that in addition to acquisitions, GE would consider “shareholder-friendly measures” in deploying its cash hoard.

And in a CNBC interview, after dismissing as “back chatter” theories that stabilizing GE Capital drove the Comcast deal, Immelt said GE could now create shareholder value in many ways with its growing “pile” of free cash, including “give it back to investors.”

Like they said at Vivendi (OTCPK:VIVEF), that sounds good to me and I’d like mine now.

Finally, for a couple of dividend-growers with higher yields than GE, and that are putting their own troubles behind them, see my Seeking Alpha articles “Strong Cash Flow, Superb Operation Back Paychex Dividend” (NASDAQ:PAYX) and “Waste Management’s Rising Dividends” (NYSE:WM).

References and Links

GE Reports, “Jeff Immelt talks about GE’s dividend,” March 2, 2009.

Yahoo Finance, GE Quarterly Cash Flow, 2009.

Yahoo Finance, GE Analysts Estimates, 2009.

Morningstar, Stock Analysts Notes, “First Impression of GE's 3Q,” October 16, 2009.

GE Investor Relation FAQs, 2009.

The Wall Street Journal, “GE to Invest in Industrial Businesses,” December 4, 2009.

CNBC, “Immelt, Roberts Discuss NBCU Deal,” December 3, 2009.

Seeking Alpha, articles “Strong Cash Flow, Superb Operation Back Paychex Dividend,” October 14, 2009.

Seeking Alpha, “Waste Management’s Rising Dividends,” September 29, 2009.

Disclosure: Long GE, PAYX, UTX, WM.