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Gorgeous, Generous General Electric

By Rich Smith - Updated Apr 6, 2017 at 9:37PM

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Dividend seekers: Prepare to gorge on this opportunity.

Is General Electric (NYSE: GE) the best thing that ever happened to investors? It just might be.

At 16 times trailing earnings, the stock's as cheap as fellow industrialists United Technologies (NYSE: UTX) and Boeing (NYSE: BA), and considerably less expensive than Citigroup (NYSE: C), which competes with GE in the credit market. GE's growing faster than these peers, with analysts predicting 14.5% annual growth over the next five years. It also pays a 3.1% dividend, better than anything these peers offer.

And you know what? As good as GE looks today, it's about to get better. That's the upshot of a Financial Times report last week, which quoted CEO Jeff Immelt promising to "reduce the float" at the industrial behemoth, and buck up the dividend as well. All of which sounds good but what does it mean, specifically?

Immelt didn't go into great specifics on what this means to you, the investor -- so I will.

What it means to you
Over the last 12 months, GE earned a net profit of $1.20 per share but paid its shareholders only $0.50 per share in dividends. But over the last 10 years, GE paid an average of $0.84 per share in annual dividends -- 52.8% of its annual net income (its payout ratio).

Even if GE doesn't return to historical levels of profitability, a return to just "normal" payouts therefore implies a 28% hike in dividends to about $0.64 per year. And it gets better.

If GE earns the $1.36 that analysts expect it to this year, a 52.8% payout ratio could push the dividend up to $0.72. If GE then earns the $1.65 it hopes to achieve in 2012 profit, the dividend could leap to $0.87 in 2012 -- a 74% jump from GE's recent payouts.

What to do
If that's the way things play out, GE could soon pay a 4.6% dividend yield on today's $19-ish stock price. Now combine this with analysts' 14.5% growth rate projections, and the impact of Immelt's promised $12 billion stock buyback (nearly 6% of GE's market cap). Taken as a whole, I believe GE's recent announcements justify at least a 20 times multiple on the stock, and perhaps a 25% increase in the stock's current market cap.

To me, GE's generous dividend makes this stock a truly gorgeous opportunity for investors.

Keep tabs on GE's corporate turnaround story. Add the stock to your Fool watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
GE
$92.77 (-2.58%) $-2.46
Citigroup Inc. Stock Quote
Citigroup Inc.
C
$62.76 (-1.65%) $-1.05
The Boeing Company Stock Quote
The Boeing Company
BA
$198.49 (-1.92%) $-3.89
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$81.11 (-0.67%) $0.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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