Last update on 2024-06-27

General Electric (GE) - Dividend Analysis (Final Score: 5/8)

Evaluating General Electric's (GE) 2023 dividend reliability using a unique 8-criteria system for stability and performance. Dividend score: 5/8.

Short Analysis - Dividend Score: 5

We're running General Electric (GE) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The given dividend analysis assesses how General Electric (GE) stands up against an 8-criteria scoring system to evaluate the performance and stability of its dividend policy, scoring a 5. Here's a summary of the assessment: 1. **Dividend Yield**: GE's current dividend yield is 0.3142%, which is much lower than the industry average of 1.57%. Previously, their yield was above 3% until 2016. 2. **Dividend Growth**: Over the past 20 years, there's been significant volatility and an average growth rate of -3.068%, which does not meet the steady 5% growth benchmark. 3. **Payout Ratio**: GE's average payout ratio is about 20.28%, comfortably below the 65% threshold, suggesting manageable dividends from profits despite some anomalies in certain years. 4. **Earnings Coverage**: The company's dividend coverage ratio has fluctuated, showing less stability since 2009, indicating dividends aren't consistently covered by earnings. 5. **Cash Flow Coverage**: The dividend coverage from cash flow has been significantly below 1.0 for many years, raising concerns about GE's liquidity and dividend sustainability. 6. **Dividend Stability**: GE’s dividends have shown instability, particularly decreasing after 2008, discouraging for income-seeking investors. 7. **Dividend Consistency**: Despite over 25 years of consistent dividend payouts, there've been sharp declines in recent years, which affects reliability. 8. **Stock Repurchases**: GE's stock repurchase activity has been mixed, showing intermittent but significant buybacks in several years. Overall, while GE meets some criteria, there are concerns related to yield, growth, and coverage from earnings and cash flow.

Insights for Value Investors Seeking Stable Income

Based on the analysis, GE shows some strengths like a lower payout ratio but struggles with low yield, negative growth, unstable earnings and cash flow coverage, and reduced dividend reliability. Only 5 out of 8 criteria are favorably met. Therefore, if you’re primarily an investor seeking stable and growing dividend income, GE may not currently be the best choice. Exploring alternatives with higher and more stable dividends might be advisable.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its share price. It is an indicator of the returns from dividends for investors, compared to the stock's price.

General Electric's (GE) current dividend yield of 0.3142% is significantly lower than the industry average of 1.57%. Historically, GE had much higher yields; for instance, yields were above 3% until 2016, peaking in 2017 at 6.462% during a period of falling share prices. Since 2018, the dividend yield has markedly decreased, largely due to drastic cuts in dividend payouts. This trend signals caution: While GE is paying dividends, the returns are minimal compared to the industry, indicating challenges in its earnings or priorities shifting elsewhere. Investors focused on dividend income might find GE's current yield unattractive despite it being a traditionally significant payer.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate indicates how much the dividend per share has increased annually. A rate higher than 5% over two decades would reflect a strong capacity for sustaining dividends.

Based on the given data, GE's dividends over the past 20 years have shown significant volatility, with enormous drops in years like 2009 and 2018 and increases in other years like 2023. The average dividend ratio is negative at -3.068%, indicating an overall decline rather than growth. This trend is unfavourable since it fails to meet the benchmark of steady 5% growth and underlines instability in GE's dividends.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% indicates company's ability to sustain dividends from profits

Examining the payout ratio data for General Electric (GE) over the last 20 years, it's evident that the company has managed to keep its average payout ratio at approximately 20.28%, which is significantly lower than the threshold of 65%. This is a favorable trend for GE as it indicates their capability to maintain dividends without imposing excessive demands on their profits. However, it should be noted that there were anomalies, eg. in 2015 and 2017 where the payout ratios were negative (-112.91 and -100.87 respectively), which could stem from extraordinary items or accounting adjustments but overall, this trend suggests solid financial management. Recent ratios show almost negligible payout percentages, indicating room for reinvestment or increased future dividends.

Dividends Well Covered by Earnings?

For dividends to be considered well-covered by earnings, a company typically should have a payout ratio between 30-50%, meaning 30-50% of earnings are paid as dividends.

When analyzing General Electric's (GE) Earnings per Share (EPS) and Dividend per Share from 2003 to 2023, a mixed trend becomes evident in terms of dividend coverage. During the early 2000s, from 2003 to 2008, GE maintained a reasonable dividend coverage ratio, averaging around 40%. This is within the healthy range, indicating that the dividends were well-supported by the earnings. However, starting from 2009, the coverage ratios began to fluctuate. In 2009 (0.44) and 2010 (0.31), the ratios still showed manageable figures but were becoming less stable. The years 2013 (-1.13), 2015 (-1.01), 2016 (-0.11), and 2017 (-0.05) highlight an alarming trend where EPS turned negative, leading to negative dividend coverage ratios. A negative dividend coverage indicates that the company is paying dividends despite losses, which is unsustainable in the long term. The most concerning recent trend begins in 2019 with a drastic drop in payout ratios; 2019 (0.05), 2020 (0.05), 2021 (0.05), 2022 (0.05), where the coverage is extremely low. Although there was a small recovery in 2023 (0.81), it depicts a highly erratic performance. This suggests that GE has faced significant earnings instability and could be cautionary for investors focusing on dividend reliability. Overall, the inconsistency in earnings coverage casts doubts on GE’s ability to sustain its dividends solely through earnings, which is a negative trend.

Dividends Well Covered by Cash Flow?

Dividend coverage ratio is a crucial metric that ensures a company's cash flows are adequate to sustain dividend payments. It is vital for determining financial health and shareholder value.

For General Electric (GE), the dividend coverage ratios between 2003 and 2023 show significant variations. The ratios are healthy and above 1.0 in only one year (2017) at 3.45, an indicator of robust dividend sustainability back then. However, in many years, particularly 2016, 2018, 2020, and recently 2021-2023, the ratios are substantially below 1.0, indicating that dividends were poorly covered by cash flow during these periods. Notable negative years, such as 2016 (-1.18) and 2018 (-1.17), highlight periods of critical financial distress. Generally, the trend showcases a decline in the dividend coverage ratio, accentuating liquidity issues and raising red flags on dividend sustainability for GE shareholders. Hence, this trend is not favorable for investors banking on dividend reliability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past two decades are essential for providing reliable income to investors and reflecting the company's financial health and management's commitment to returning value to shareholders.

Analyzing the historical dividend payments of General Electric (GE) reveals notable fluctuations in its dividend-per-share values. From 2003 to 2008, dividends exhibited an upward trend, reaching a peak in 2008 at $7.4461 per share. However, in 2009, there was a sharp decline to $3.663 per share, marking a drop of over 50%. The downward trend continued in subsequent years, with dividends per share reducing significantly, particularly in 2015 at $5.5245 per share, to as low as $0.2498 per share from 2018 to 2021. This decrease represents more than a 20% drop at various points, showcasing instability and hindering its appeal to income-seeking investors looking for steady and reliable dividend payouts.

Dividends Paid for Over 25 Years?

Look for consistent dividend payouts over a period of 25 years to assess reliability and dividend culture of the company.

The data reveals that General Electric (GE) has indeed paid dividends continuously for over 25 years, which initially might seem impressive. However, a deeper dive into the numbers shows a dramatic decline in dividends per share from a peak of $7.4461 in 2008 to a meager $0.32 in 2023. Between 2008 and 2009, dividends per share dropped sharply to $3.663 and subsequently lowered even more dramatically post-2017 reaching only $0.2498 per share before a slight increase recently. This significant fall particularly since 2008 indicates that while GE holds a tradition of paying dividends, its capacity to maintain high dividend payouts has considerably weakened. Such trends can often be associated with adverse operational or financial circumstances and may serve as warning signals for potential long-term investors. Thus, although GE meets the criterion of paying dividends over 25 years, the trend is decidedly negative in terms of dividend quality and could have implications concerning future payout reliability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to the consistent repurchasing of a company's own shares over time. This indicates financial strength and a focus on returning capital to shareholders.

General Electric's (GE) stock repurchase activity over the past 20 years shows varied trends. From the data, GE repurchased shares in specific years, such as 2006, 2007, 2008, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2022, and 2023, indicating intermittent but not consistently annual repurchases. The number of shares has decreased from 2006 (1,329,250,000) to 2017 (1,089,000,000), supporting the assertion of sporadic but substantial buybacks. An average repurchase rate of -0.6832 indicates more instances of decline in share count, which is favorable for shareholders due to potential stock value increases. Despite this, the trend isn't uniformly positive every year, making GE's repurchasing strategy less reliable overall but still having significant periods of positive impact. This trend shows the company’s effort in stabilizing shareholder value during certain favorable periods, although not consistently making it a mixed but predominantly beneficial trend for investors.