General Electric (NYSE:GE) should not be drawing the level of controversy it does at Seeking Alpha.
It also should not be in any but the most conservative of portfolios. You should only consider investing in this stock if high, and potentially rising, dividends sound attractive.
Jeff Immelt has, in his almost 14 years at the helm, transformed GE from a go-go financial and entertainment stock, which it was under predecessor Jack Welch, into a staid industrial focused on energy and health care. In the process he has knocked about 40% off the company's equity value, from about $39 to its present level of $25. He has also kicked its days of high volatility to the curb. The shares today are worth seven cents less than they were a year ago.
If you have gone along for the ride, and I have, then you have been taken for one. GE has never recovered the level it had before the Great Recession, and it likely never will pending the next CEO's great transformation. Immelt was forced to cut the quarterly dividend from 31 cents to 10 cents in 2009, but it has since rebounded slowly, and it's now at 23 cents, for a yield of 3.67%.
Not that GE hasn't done good, it has. America has more renewable energy because of GE's wind turbines, and its economy is more efficient due to GE's energy management. But GE bet heavily on oil and gas infrastructure so it has suffered from the oil collapse, and while railroads are efficient they will never be sexy again.
Immelt has used the immense strength of GE Capital to cover up what now look like bad bets, slowly selling it in pieces to keep things level. The latest such transaction is the sale of its Australia-New Zealand assets, for $6.1 billion, to a private equity group headed by KKR (NYSE:KKR). You would think that eventually Immelt is going to run out of family jewels to sell, but there remain a lot of jewels in the vault.
So why are we talking about GE at all? One reason is that we have a lot of oil bulls at Seeking Alpha who insist its energy assets make it seem "overvalued." Another reason are continuing rumors that Immelt might be about to resign, which are quickly dashed. He took over the company while still in his mid-40s and just turned 59.
GE just has too many assets, about $650 billion; and too much operating cash flow, $27 billion in the last year, to kill. But its sales and net income are practically a straight line - the top line has changed just $2 billion in four years; the bottom line a little more than $1 billion. That trend is just not going to change because GE has placed so many long-term bets, on capital-intensive water projects, energy projects, and high-end health equipment.
So what you're left with today is a steady generator of dividends that won't take you under. Most of my personal portfolio is in tech stocks, where I expect to see higher earnings and capital appreciation, but there's always a little GE there in case of disaster. If I were to get more aggressive in my capital allocations, if I were 30, 20 or even 10 years younger, I'd sell it in a heartbeat, but I'm in the retirement "red zone" now so that yield is looking increasingly attractive.
GE, in other words, is a good stock for an aging, diversified, dividend investor to have in the sock and ignore. That's all it's ever going to be as long as Jeff Immelt is running the company, and probably, for years afterward.
Disclosure: The author is long GE.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.