The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.
Today, I'm taking a closer look at General Electric (NYSE: GE ) . GE's stock has underperformed the Dow Jones Industrial Average (DJINDICES: ^DJI ) over the last two decades, but it's a different story if you reinvested GE's dividends along the way.
The industrial giant was a bona fide dividend aristocrat once upon a time, before the 2008 recession and sweeping internal restructuring necessitated a massive dividend cut. GE has been replacing the lost payouts at top speed since that dramatic cut, but it's a long haul. Today's dividend is roughly on par with GE's payouts in 2003.
On the upside, GE still has plenty of headroom to boost the dividend policy, backed by $16 billion in free cash flows last year. Dividend payments accounted for $7.2 billion of that inflow, and another $4.2 billion was pumped into share buybacks.
On the other hand, GE sported $26 billion of free cash flows as recently as 2010, so the cash trends are going in the wrong direction.
GE has certainly been around the block and seen its share of downturns since it was founded in 1878. Right now, the company is battling an unusually strong horde of personal and economywide demons. The stock is lagging behind its Dow peers in the post-recession era any way you slice it, but there's an upside to low share prices, too.
Buy GE today, and you'll lock in a 3.4% dividend yield. That's above the company's 25-year average yield and higher than the average Dow stock's payout percentage as well.
If you believe GE will work through its issues and bounce back stronger, this could be the perfect time to take action.
The recent financial crisis dealt GE a major blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.