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How Dividends Change the Game for General Electric Stock

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.

Industrial all-arounder General Electric (NYSE: GE  ) is a curious case of dividend value. The stock combines a brutally low rate of dividend growth with equally disappointing share-price growth, which makes for a juicy dividend yield but terrible total returns.

GE slashed its dividends by the knees in 2009 as a reaction to the panic of 2008. The company is boosting its payouts in the post-crisis era, but it will take several more years to reach 2008's record levels again.

GE Dividend Chart

GE Dividend data by YCharts.

All told, GE has offered one of the slowest 10-year dividend growth trends among the 30 Dow Jones (DJINDICES: ^DJI  ) components. Only three stocks lag behind GE in this regard. The megabanks on the index, Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) , have been forced to hold their dividends extremely low by FCC rules meant to prevent another financial disaster. JPMorgan is raising its payouts once again, but Bank of America isn't even asking for permission yet. Aluminum producer Alcoa (NYSE: AA  ) suffered financial trauma from the same 2008 panic and has been slow to recover. The company depends on healthy financial markets to drive its customers' large construction projects, making Alcoa a proxy of sorts to the banking sector.

All of these stocks, GE included, have plenty of reason not to boost their dividends through the roof. Don't forget that GE also runs a large financial arm that is the company's largest and most profitable division. It's a bank stock for investors who don't like bank stocks.

GE's yield always seems to hover just north of 3%, which is above the Dow's average yield of 2.6%. But share prices have lagged the overall market for many years, and the dividend checks aren't enough to make up for the difference. GE investors trail behind the Dow even with their dividend checks reinvested:

GE Chart

GE data by YCharts.

However, past performance (or the lack thereof) is no guarantee of future returns. GE has plenty of headroom to increase its dividend payouts and should do so in the next few years. Still, looking at these charts hardly inspires confidence in GE's income-generation prowess. I'd advise dividend investors to put GE on the back burner for now. The company is simplifying its operations, which might lead to stronger bottom-line results and more generous dividends as the plan works out. Just add GE to your Foolish watchlist and keep an eye on that situation.

GE may not be a slam-dunk income stock, but the Dow is packed with stronger alternatives. If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 06, 2013, at 7:55 PM, Redskins142 wrote:
  • Report this Comment On September 06, 2013, at 8:07 PM, chris293 wrote:

    GE is making money, but as with any stock, it takes time to turn around. Washington D.C. has not helped and I still blame them for the financial problems of 2008 and even now since many in Washington think they can spend us out of our

    problems by attacks on political business money and not attacking the influence of union and religious money used to influence political elections/decisions. The companies in your article show the P/E figures are important to dividend growth or any hope for same.

  • Report this Comment On September 08, 2013, at 5:34 PM, ChristianRiley wrote:

    FCC rules????

    "The megabanks on the index, Bank of America (NYSE: BAC ) and JPMorgan Chase (NYSE: JPM ) , have been forced to hold their dividends extremely low by FCC rules meant to prevent another financial disaster."

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Related Tickers

9/30/2016 5:01 PM
^DJI $18308.15 Up +164.70 +0.91%
AA $10.14 Up +0.18 +1.81%
Alcoa CAPS Rating: ***
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Bank of America CAPS Rating: ****
GE $29.62 Up +0.09 +0.30%
General Electric CAPS Rating: ****
JPM $66.59 Up +0.94 +1.43%
JPMorgan Chase CAPS Rating: ****