GE Stock – GE strains appear ready to become dividend growers again
General Electric (NYSE:GE) Reported the results for the first quarter of 2021 on April 27. Adjusted profit was 2 cents better than analysts’ estimates, Missed topline consensus $ 420 million. The news pushed down GE stocks.
But despite the mixed quarters, General Electric sees companies that look like they’re ready to become dividend producers again, as they did years ago. Reduce dividends Back in December 2018, just to Penny.
That’s why I feel this way about GE stocks.
GE shares: Free cash flow is strengthened
As any investor worthy of their salt knows, the company pays dividends from surplus cash. As such, these names that generate healthy cash flow are fine to increase dividends each year.
At the height of the glory of dividend payments in 2008, GE shares paid $ 1.24 (split-adjusted). Annual dividend.. It hasn’t been this expensive since then. In that fiscal year, the industrial business $ 19.1 billion (Page 75).. After deducting $ 3 billion in capital investment, the industry’s free cash flow (FCF) was $ 16.1 billion. In 2020, GE’s four industrial businesses generated the following FCFs: $ 606 million, Down from $ 2.3 billion in 2019 and $ 4.8 billion in 2018.
In 2008, the industrial business produced about 27 times more FCF than in 2020.
In the first quarter of 2021, the industrial FCF was $ -845 million. 62% higher From a year ago. It’s not positive yet, but it’s much better than at this point last year. Regarding the results, CEO Larry Culp said:
“We are proud of the GE team’s strong first-quarter performance despite the still difficult environment for aviation. Industrial free cash flow increased $ 1.7 billion year-on-year, improving cash performance and profitability. doing.”
As a result, the company reiterated its full-year 2021 outlook, stating that GE Industrial’s FCF will be between $ 2.5 billion and $ 4.5 billion. This is an increase of 313% compared to 2020 at the lower limit of the FCF estimate and an increase of 643% at the upper limit.
To return to the annual dividend of $ 1.24, GE will need to generate approximately $ 10.9 billion in FCF (8.8 billion shares issued multiplied by $ 1.24) to accommodate such payments. There is. So, obviously, this will not happen in 2021 or 2022. However, if Culp’s plans gain more momentum and the company’s FCF continues to strengthen, it could happen in 2023.
GE and its current dividend
Anyone who is a long-term shareholder of GE will find it difficult to see the current dividend yield at just 0.3%. This low yield is part of the price that Calp had to pay to accelerate debt repayment. Since the end of 2018, GE has reduced its debt by more than $ 70 billion.
With this alone, Calpe’s tenure will be successful. However, it is the CEO’s decentralization efforts that determine the future of the company. A lean organization close to your customers should help rekindle GE’s growth engine.
Given the fact that the company’s electricity and renewable energy segments accounted for more than $ 16 billion in first-quarter industrial revenues, about 43%, but neither made a profit, in terms of overall revenues, This rise is actually very promising.
If both of these segments had a profit margin of 5% in the first quarter of 2021, we would talk about a profit of $ 358 million against a revenue of $ 7.1 billion instead of a loss of $ 321 million. It will be. This is a turnaround of about $ 700 million.
Based on the 8.8 billion shares issued, that $ 700 million is equivalent to approximately 8 cents per share of potential dividends that GE may pay. I think this is only theoretical, but imagine how much the news that GE’s stock price has increased its quarterly dividend by 700% will soar. It costs only 1 penny to 8 cents per share.
All I know is that this is important.
GE Stock Revenue
I recently recommended GE stock as one 10 dividend stocks to buy Less than $ 25.
Part of My rationale To that end, GE launched its aircraft leasing business, GE Capital Aviation Services (GECAS). Air cap (NYSE:AER) $ 24 billion in cash, 46% of the merged company. I wrote on March 31st:
“Calpe believes that balance sheet leverage and risk mitigation will allow the company to focus on other business segments. As stated in the bubble wrap sales press release,” Trading is GE’s. conversion To be a more focused, simpler and more powerful industrial company. “
I still agree with that feeling. By returning to its roots, GE should eventually regain the grace of dividend investors everywhere.
In the meantime, take advantage of the downside volatility to buy GE shares in the range of $ 12 or less. This time next year, we may not be able to include General Electric in the discussion of dividend stocks to buy for less than $ 25.
At the date of publication, Will Ashworth did not have (directly or indirectly) the position of the securities listed in this article.
Will Ashworth has been writing about investing full-time since 2008. Publications in which he has appeared include InvestorPlace, The Fintech Zoom Canada, Investopedia, Kiplinger, and several others in both the United States and Canada. He especially enjoys creating a model portfolio that can withstand the challenges of time. He lives in Halifax, Nova Scotia.