investing

GE Stock Remains Attractive for Income Investors

The solid dividend yield appeases shareholders as the company continues to reinvent itself

General Electric's (symbol GE) first-quarter revenue may have slipped year-over-year but the industrial giant still managed to exceed analysts' expectations thanks to strength in several key businesses.

GE's first-quarter results, issued April 21, were by no means overwhelmingly positive. But GE's goal of turning itself into a pure industrial company continued to make progress, albeit slowly. The case for GE as a long-term stock for income remains unchanged.

GE has spent the last two years undergoing a slow, painful transition away from what was a scattershot conglomerate of unrelated business. It was essentially a bank, an industrial company and a media company. The hodgepodge made it difficult for investors to value the business. That should no longer be a problem, analysts say. "From a classic conglomerate with diversified business interests in financial services, media, industrial and technology-based operations, the company has pruned its operating portfolio to focus on core manufacturing businesses with a digital edge," says Zacks Equity Research.

But it's not quite there yet in terms of taking off as an industrial firm. Blame the oil market. Oil-and-gas revenue fell 9% and segment profit fell 33%. GE is making a bold move to address the issues in energy demand by merging with oil-services giant Baker Hughes (BHI). The deal, which is slated to close later this year, will wring savings out of this line of business, and that will alleviate pressure on the bottom line. For now, however, the global oil glut remains an albatross.

Other GE segments posted strong results for the most recent quarter. GE's power, renewable energy, aviation, health-care and transportation businesses all beat analysts' expectations. Highlights included a 17% jump in revenue from turbines and power plants, which is GE's largest industrial segment. The broader renewable-energy business posted a 22% increase in quarterly revenue vs. the year-ago period.

As a whole, GE delivered net income of $619 million, or 7 cents a share, compared with a loss of $61 million, or a penny a share, in the same period a year ago. Excluding non-recurring items, adjusted earnings per share came to 21 cents. Analysts polled by Thomson Reuters were looking for adjusted earnings of 17 cents a share. Revenue fell 1% to $27.66 billion from $27.85 billion, but that managed to top Wall Street's estimate for $26.37 billion.

The latest results come a month after the company agreed to double its cost-cutting plan amid pressure from Trian Fund Management, an activist investor. Although that puts management's feet to the fire, it's good news for shareholders, as it should help the company attain its profit goal of $2 a share for 2018. Analysts are currently looking for 2018 earnings of $1.90 a share.

Buy GE Stock for the Dividend

The savings also will help the company achieve its pledge to return more cash to shareholders. GE expects to disburse approximately $8 billion in dividends this year and buy back between $11 billion to $13 billion worth of its own stock.

As anyone who's held GE stock for a while can attest, it doesn't wow you with price performance. But it's not as sleepy as some might think. Since the bull market began in March 2009, GE has actually matched the performance of Standard & Poor's 500-stock index including dividends. As an income stock, GE hasn't really been a disappointment. The idea is that as an industrial firm, GE will be poised for outperformance.

That said, this is an income play. GE has paid a dividend for more than a century and has delivered an annualized dividend growth rate of nearly 9% over the last five years. It's shown that it's committed to returning cash to shareholders. The current dividend yield on the stock is a healthy 3.2%.

The ultimate takeaway from the earnings report is that nothing has changed when it comes to GE being a solid dividend stock for the long haul.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
November 16, 2021
Resist the Impulse to Buy These 14 Holiday Gifts
shopping

Resist the Impulse to Buy These 14 Holiday Gifts

Don't let those holiday sale promotions persuade you into buying something now that will be much cheaper later.
November 18, 2021

Recommended

How Leveraging Alternative Assets and Modern Portfolio Theory Can Help Investors Improve Returns
investing

How Leveraging Alternative Assets and Modern Portfolio Theory Can Help Investors Improve Returns

To help manage risks and possibly boost returns, everyday investors should think about including alt investments in their portfolios. Here’s how to ap…
December 4, 2021
Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
December 3, 2021
65 Best Dividend Stocks You Can Count On
dividend stocks

65 Best Dividend Stocks You Can Count On

Yield isn't everything when it comes to finding the best dividend stocks. Income investors know there's no substitute for regular dividend increases o…
December 3, 2021
Investing for Income with Jeffrey Kosnett
investing

Investing for Income with Jeffrey Kosnett

Cold, hard cash working from home! No, this isn’t a scam — it’s an investing strategy built on bonds, REITs, preferred stocks and more.
November 30, 2021