General Electric Co. (GE) plans to extract $6.5 billion in dividends from its financial unit this year as Chief Executive Officer Jeffrey Immelt ramps up shareholder rewards while shrinking the business.
The payments from GE Capital will consist of 30 percent of its total 2013 profit, or about $2 billion, and a $4.5 billion special dividend, GE said today in a statement. GE Capital paid a first-quarter earnings dividend of $447 million on April 19, it said.
GE Capital resumed the payouts last year, returning $6.4 billion to its parent, after suspending them in 2009 as frozen credit markets jeopardized its access to financing. Immelt is tapping the financial division for cash to fund stock buybacks and dividends that are slated to return $18 billion to shareholders this year while shrinking its contribution to GE’s total profit.
“This announcement is consistent with our goal to reduce the overall size of GE Capital and for it to return significant cash to GE,” Immelt said in the statement.
The company, the world’s largest manufacturer of jet engines, will obtain 65 percent of its profit from its industrial units by 2015, compared with about 55 percent last year, Immelt said in December at a meeting with analysts and investors. Transportation, health care and energy, along with other manufacturing businesses, are the focus of Immelt’s expansion strategy for Fairfield, Connecticut-based GE.
Ending net investment, a measure of GE Capital’s size that excludes non-interest-bearing liabilities and cash, declined 22 percent to $402 billion as of March 31 from the beginning of 2009, according to the statement and GE regulatory filings.
“Management has weathered the financial crisis well, improving their equity position even while shrinking the asset base and improving the quality of their portfolio,” Steven Winoker, a Sanford C. Bernstein & Co. analyst who has a market-perform rating on GE shares, wrote in a note to clients today.
Immelt is emphasizing the company’s industrial operations after seeking government assistance for GE Capital in the wake of Lehman Brothers Holdings Inc.’s 2008 collapse. The company placed $16 billion of short-term debt through the Federal Reserve’s Commercial Paper Funding Facility and issued $59 billion of bonds backed by the Federal Deposit Insurance Corp. during and following the financial crisis.
GE Capital had net income of $7.4 billion on $46 billion in revenue last year. The unit had $68 billion in cash at the end of the first quarter.
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