Well? Was I right, or was I right? (Hint: I was right.)
A little over six months ago, I mentioned how General Electric
Last week, GE announced a 13% hike in its quarterly dividend to $0.17 per share. Working off today's stock price, this amounts to a 4.1% yield on the company's new $0.68 annual commitment to its shareholders. It's a better payout than you'll find at fellow leading industrialists Caterpillar
In fact, I think GE just might be the best thing since sliced bread for dividend investors.
And by bread, I mean money
Here's how the numbers work: According to Immelt, the plan is to get GE back up to about a 45% payout ratio -- i.e., to pay out 45% of net income in the form of dividends. Right now, analysts expect the company to earn about $1.56 per share next year. A 45% payout on that would therefore work out to about $0.70 per share in dividends.
- GE has beaten analyst earnings predictions in three of the past four quarters.
- The NBC Universal joint venture with Comcast improves the company's cash position.
- To top it all off, Immelt has promised to deploy part of its massive $19.4 billion in annual free cash flow to "reduce the float" of its shares.
Result: However much of GE's net income gets paid out in the form of dividends, it could result in even larger increases to dividend yield because there will be fewer shares outstanding. Simply put, the divvy will get divvied up among fewer shares.
Now here's the best part: Thanks to a laggard stock price, GE can now achieve the 4.6% dividend yield I predicted back in July by adding just $0.07 to its annual payout -- that's less than it added just last week. And GE's already upped its divvy four times in the past 18 months.
Think it'll do it again? I do. That's why at close of trading today, I intend to reopen my outperform recommendation on General Electric, publicly endorsing the stock on Motley Fool CAPS. Feel free to follow along -- and hold me accountable if I'm wrong.
What's the next chapter in GE's corporate turnaround story? Add the stock to your Fool Watchlist, and read along.Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 327 out of more than 180,000 members. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.