General Electric (NYSE:GE) announced an increase of 5% to the company's quarterly dividend to $0.23 per share. The dividend is payable on January 26, 2015 for shareholders of record as of December 22, 2014. The ex-dividend date is December 18, 2014.
Chairman and CEO Jeff Immelt commented that:
"We are pleased to increase GE's quarterly dividend for the seventh time in five years. Returning cash to shareowners remains our top priority, while we continue to invest in long-term growth. Alongside our strong operational outlook, today's announcement reflects our balanced and disciplined approach to capital allocation."
Going forward, GE will struggle to trade off between the dividend, share buyback, and internal growth opportunities/investments. As I previously wrote, GE currently has a heavy dividend burden, which year-to-date represents a significant proportion of the free cash flow. This, taken in conjunction with GE's high valuation, makes me cautious about buying share at current prices.
GE's new annualized dividend is $0.92/share, which represents a payout ratio of 64% of free cash flow (trailing twelve months). As we see in the graph below, GE's payout ratio has been increasing since 2011. In a lower oil price environment, the ratio could come under further pressure, and I am hesitant to speculate on further dividend increases.
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