Tuesday, March 4, 2008

Analysis of General Electric

General Electric Company (GE) operates as a technology, media, and financial services company worldwide.

It is a dividend aristocrat as well as a major component in Dow Jones Industrials and S&P 500 indexes. Over the past 10 years this dividend growth stock has delivered an average total return of 6.50% annually to its shareholders. The stock price has yet to recover from its 2000 highs though. The company has managed to deliver an impressive 10.24% average annual increase in its EPS.

The ROE has been in a decline over our study period, falling from a high of 24% to a low of 15% in 2006 before recovering below 20% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 12.38% annually, which is slightly above the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling every 6 years. If we look at historical data, going as far back as 1976, GE has actually managed to double its dividend payments every six years.

If we invested $100,000 in GE on December 31, 1997 we would have bought 4089 shares. Your first quarterly check would have yielded $408.90 in dividend income in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1561.47 by December 2007 and you would be expecting to collect $1574.49 in dividend income in February 2008. For a period of 10 years, your quarterly dividend income has increased by 210 %. If you reinvested it though, your quarterly dividend income would have increased by 281.87%.

Although the payout has been over 50% for the past several years, I like the company’s low P/E ratio at 15 and the above average dividend yield of 3.60%.

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