When General Electric first appeared as an original member of the Dow Jones Industrial Average the escalator, X-ray machine and the dial telephone were new technologies. It was 1896 and GE was among the dozen stocks included in that first Dow Jones Industrial group.
It’s still included today, but it has struggled mightily as a stock in recent years. While the Dow Industrial stock index is up 20 percent this year, GE shares have shed 40 percent. The one-time poster child of modern corporate efficiency and financial prowess has never recovered its shine since the Great Recession.
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On Monday, the company’s new CEO, John Flannery, will present his vision of the company in its third century. Profits are down. Cash flow forecasts have been cut. And the company’s own accounting has been criticized for its opaqueness. These are not the building blocks for investor confidence.
Practically, for shareholders (of which I am one with 100 shares), the turnaround for GE may mean what was unthinkable for the venerable company — cutting the quarterly dividend. At its current price, GE stock pays almost 5 percent to investors just for holding the stock. That’s about twice the yield of the 10-year U.S. Treasury bond. Of course, with the government bond, you know you’ll get paid.
A stock dividend is a company’s way of showing confidence in its ability to generate cash by diverting some of it to shareholders instead of reserving all of it for itself. Tech companies famously resist dividends in their younger years as they plow profits back into the business.
GE has pared down its once-sprawling portfolio, but it remains a conglomeration of varying businesses: from train engines to wind turbines, light bulbs to health imaging machines. The new CEO has signaled the desire to shrink its empire. While the cash from selling business lines could support the stock dividend now, how the company uses its money will determine its future.
Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM; @HudsonsView.