Safe 5% yield and 10 times earnings….picked up some for $24.77 a share Friday morning.
I first got real interested in GE (GE) last week when shares hit $23 and change but did not pull the trigger.
Yesterday, GE lowered guidance for the quarter and the year. Not real surprising given conditions out there but two questions I has were answered. Was the dividend safe, and was their ‘AAA’ rating safe. The answer to both was yes.
Why does ‘AAA’ matter? Consider there are only 6 companies that carry that rating, Automatic Data Processing (ADP), Berkshire Hathaway (BRK), GE (GE), Johnson & Johnson (JNJ), Exxon (XOM), and Toyota (TM). It simply means safety and low cost of capital. In these times, with the inevitable credit contraction with us for years, a ‘AAA’ rating will take on more importance.
The dividend. I like high, safe dividends. I currently hold Altria (MO) at 6%, Phillip Morris International (PM) at 4%, Dow Chemical (DOW) at 5%, Wells Fargo (WFC) at 4% dividend yields. Now we’ll ad GE at 5%. All of the above had dividends that, were they to be forced to be cut, simply would mean economic conditions have deteriorated to the point that the actual dividend cut would be the least of all our worries.
Watch the following video from Thursday. Please ignore CNBC’s Melissa Francis saying GE Capital was a “buy to sell” model. It isn’t (that has been discussed here on this blog before as a reason to maybe buy GE shares). It is a “buy to hold” and Immelt corrects her…how could she get that wrong? She just interviewed her boss and had the business model for the company’s main profit driver wrong….I bet it will come up at review time. Anyway, the video.
Here is an interview with Charlie Rose from March:
I think it is safe to say Immelt as GE (along with virtually every economist and other business leader) underestimated to the scope of the current crisis. That being said, I can’t single him out as “being wrong” about the future. But, if we look at the various businesses, one must be encouraged. GE is global in scope and will benefit from global growth. It’s financial services, being hit hard by the crisis, still maintain ‘AAA’ ratings despite the turmoil. That means very attractive opportunities will arise for GE that other lenders will not get, or be able to fund.
Now, the Immlet bashers will point to thew stock being near $60 a share in 2000 (yielding less than 1%) and want his head for its fall. But, GE made $1.27 a share that year. So, if you paid 47 times those earnings in 2000, Immelt is not the problem, you are. Paying 47 times earnings for a conglomerate the size of GE, is well ,for lack of a better word, just moronic. But, 10 times earnings with a 5% yield?
Essentially a bet on GE at this time is a bet on the global growth story, at a very good price, and a 5% yield. It may take some time to pan out, but i think it will, handsomely.
Disclosure (“none” means no position):Long GE,MO,PM,WFC,DOW
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