Diversified conglomerate General Electric (GE) announced their second quarter earnings this past Friday. GE's finance unit, GE money's profits fell 9% while the consensus estimate was for profits in that unit to drop 15-20%. Their Infrastructure unit's earnings, on the other hand, were up 24%. Overall the company met expectations by posting nearly flat earnings growth over the same quarter in 2007. Revenue actually rose 11% to $46.9 B.
GE's shares got hit hard last quarter when they surprised the market by announcing an unexpected drop in earnings due to weak credit markets. In this most recent earnings release GE affirmed it's full year earnings forecast of $2.20-$2.30 per share. This is barely above their 2007 earnings per share of $2.20. With plans to spin off their industrial and appliance units, and forecasting further lower profit from their finance segments, GE's earnings growth looks stagnant for the short term.
But really, here at The DIV-Net we don't care about the short term. Here are a few points to ponder with respect to GE as a potential long term dividend growing investment:
As of writing this GE shares of off about 25% year to date, and it's not a purely financial company. Yes GE has some financial exposure but one of the scary things about investing in financials, for a dividend growth investor, is the possibility of dividend cuts. Since GE has a pay out ratio of about 52%, and minimal exposure to finance as compared to, say a bank, the dividend is not at risk because their other divisions profits are looking pretty solid. This is a key point because as mentioned GE is now yielding about 4.5%, and probably has a bright future, even without light bulbs. A 'yield on cost' of 4.5% with solid growth potential is a great starting point for a position in this company.
This article was written by the moneygardener. You may email questions or comments to me at themoneygardener(at)gmail.com.
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