General Electric and dividends
In this part, we’ll discuss General Electric’s (GE) dividend distribution. In January 2017, General Electric increased its dividend by $0.01 to $0.24 per share, resulting in an annualized dividend per share of $0.96. The company’s dividend per share was $0.92 for two years. Before we check GE’s free cash flow to support the dividend payments, we’ll take a look at the company’s dividend yield.
Over a quarter, GE’s dividend yield has risen, the result of a lower stock price in 2Q17. General Electric has a dividend yield of 3.6%, which looks reasonably low. Let’s compare it with peers’:
- Honeywell International (HON): 2%
- United Technologies (UTX): 2.3%
- The 3M Company (MMM): 2.2%
- Boeing (BA): 2.7%
- Parker-Hannifin (PH): 1.6%
The iShares US Industrials ETF (IYJ) has an 11.1% exposure to aerospace and defense companies. Investors wanting indirect exposure to General Electric could consider IYJ. The company makes up 7.7% of its portfolio holdings.
GE’s cash flow
Dividends are paid with a company’s free cash flow. Free cash flow is derived by subtracting capital expenditure from operating cash flow. Usually, a company uses its spare cash for dividends, reinvestments, or stock buybacks. GE’s industrial operating cash flow is a concern for the company.
In 1Q17, GE’s industrial operating cash flow was $1.0 billion less than it had expected. A rise in GE’s dividend mostly depends on it meeting the industrial operating cash flow target of $12.0 billion–$14.0 billion in 2017. In the last part of this pre-earnings release series, we’ll look at analysts’ views on General Electric and its peers.