General Electric Company's Dividend Streak Continues

The dividend reigns supreme for GE shareholders. Here's a look at where it's headed.

Jan 19, 2014 at 4:00PM

The industrial giant General Electric (NYSE:GE) wrapped up 2013 by reporting impressive earnings growth and a robust order backlog -- two promising signs for investors. In short, the turnaround that's been five years in the making continues to pick up steam.

Nevertheless, shareholders who felt shortchanged by management during the recession admit there's only one thing that can restore their faith: Raise the dividend; rinse and repeat.

For GE to re-establish itself as one of the bluest of blue chips, heady dividend growth must continue. Fortunately, GE's management team is well on its way.

A company led astray
As the saying goes, "Revenue is vanity, profit is sanity, and cash is reality." GE shareholders know this all too well.

For decades, General Electric accelerated revenue growth by investing in all stripes of businesses. At one point, management promised shareholders it could be the preeminent player in industries as disparate as light bulbs, movies, and natural gas turbines. If you're not seeing the commonality, well, that makes two of us. Whether executives were distracted or vain is irrelevant. GE was simply pursuing growth for the sake of growth.

At the same time, the century-old manufacturer went full throttle into banking in a race to boost the bottom line. As debt levels increased, so did returns on shareholder investment, to a point where GE's companywide return on equity surpassed 20%.

Those levels are atypical for a company of GE's size and ultimately proved unsustainable. As a result, so did GE's outsized dividend payment. When GE found itself entangled in the worst financial crisis since the 1930s, the company was forced to commit the ultimate sin and cut its dividend. On a per-share basis, GE's annual dividend payout shrank by half from 2008 to 2009, as shown in the following chart:

Considering GE's century-old dividend history, let's just say shareholders were none too pleased to watch their income stream fall off a cliff. Many investors jumped ship around 2008.

For those who stuck around, their message was clear: GE needed to return to its roots, and -- most importantly -- future success would be measured in terms of cash returned to shareholders. A consistent, growing dividend payout would be key for GE's share price to bounce back.

Back from the brink
In the five years since the fallout, GE's doubled down on its commitment to increase dividend payouts and share buybacks in a step-wise fashion. While the turnaround is far from complete, GE seems to have followed through on promises made.

Last year, CEO Jeff Immelt emphasized the importance of returning cash to shareholders: "We want investors to see GE as a safe, long-term investment. One with a great dividend that is delivering long-term growth." He elaborated on this mission in a section on capital allocation:

The top priority remains growing the dividend. Since 2000, we have paid out $106 billion in dividends, more than any company except [Royal Dutch Shell], and more than we paid out in the first 125 years of the Company combined. We like GE to have a high dividend yield, which is appealing to the majority of our investors.

The message is clear, but shouldn't the results speak for themselves? A look at the prior chart shows that GE is leaps and bounds ahead of where it stood in 2010. Since then, GE's shored up its balance sheet and reined in its financial arm, GE Capital. In only three years, GE's dividend has grown from $0.46 to $0.79 per share, a 72% increase. The company's approach is commendable as well.

GE's payout ratio, which represents the amount of earnings paid out to shareholders, stands at about 48% based on last year's earnings per share. Investors typically grow wary when a payout ratio creeps near 80%, a far cry from GE's current standing.

Furthermore, GE is tackling dividend growth from multiple angles. Management is focused on boosting organic revenue and expanding margins, thereby increasing earnings. At the same time, the company is buying back shares periodically to decrease the total outstanding to less than 10 billion. The following chart shows the multiple avenues by which GE is steadily redistributing cash to shareholders.

A Fool looks to the future
A half-decade into GE's turnaround, it's hard to be skeptical of the comany's progress. GE announced a dividend increase just last month to $0.22 per share, continuing a streak of six dividend increases since 2010. The preceding charts prove that GE's headed in the right direction in this regard.

Shareholders, by and large, won't be satisfied until GE to be a top-tier dividend stock once again, but that's to be expected. GE's become known for its ability to always shoot higher and push further. Even if the dividend returns to its peak in 2008, don't expect this company to rest on its laurels.

Find the next General Electric
General Electric is a prime example of a stock that made investors rich if they held for decade after decade. Letting your winners run is a strategy that we take seriously, in the spirit of great investors like Warren Buffett. That's why our CEO, legendary investor Tom Gardner, is so adamant about finding the greatest businesses for his ultra-long-term portfolio. He recently isolated his best ideas, and permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today, so click here now to uncover the three companies we love.

Isaac Pino, CPA, and The Motley Fool both own shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers