Chief Executive Officer Jeffrey Immelt may show his confidence in General Electric Co.’s growth prospects next week by outlining investment plans including the second dividend increase in six months.
GE, which amassed cash of about $78 billion through Sept. 30, posted its second consecutive earnings gain last quarter and showed simultaneous increases in service and equipment orders for the first time in two years. finance unit, GE Capital, projected full-year profit of $3 billion this week.
The “comfort factor with investors has risen significantly” for GE Capital, said Jeffrey Sprague, founding partner of Vertical Research Partners Inc., who expects a quarterly dividend increase of 2 cents per share this month. “To get the stock moving to the next level it will take stronger industrial earnings growth.”
A boost from the current payout of 12 cents would mark a return to GE’s pattern of announcing annual increases in the fourth quarter, which the company did from 1983 through 2007. In February 2009, GE cut its quarterly dividend to 10 cents from 31 cents, about 68 percent, as the global financial crisis deepened. The board raised the dividend 20 percent in July and resumed share buybacks.
1992 Dividend Boosts
GE has projected it will have $20 billion in discretionary cash at year-end, after asset sales. Immelt may indicate how some of that money will be spent when he discusses next year’s outlook in an annual meeting with investors on Dec. 14.
Robert Cornell of Barclays Plc. and Terry Darling of Goldman, Sachs & Co. are also among analysts expecting a dividend increase, with estimates from 8 percent to 30 percent, according to notes to investors this month. Cornell and Darling recommend buying GE, while Sprague rates it “hold.”
A dividend increase of 8 percent would boost GE’s annual payout to 52 cents from 48 cents, while a 30 percent raise would mean a yearly dividend of about 62 cents. The last time GE raised its dividend twice in a year was in 1992, according to data compiled by Bloomberg.
A projection based on Bloomberg research and analysis indicates GE probably won’t raise the dividend this month, boosting it to 14 cents in September instead.
A GE spokeswoman, Anne Eisele, declined to comment on potential announcements at the meeting.
The Fairfield, Connecticut-based company no longer provides a per-share forecast, instead giving investors a framework for calculating their own.
GE may earn $1.12 a share in 2010 and $1.27 a share in 2011, the average estimates from analysts surveyed by Bloomberg.
In addition to the possible dividend increase, GE may spend some of its cash stockpile on “bolt-on” acquisitions that fit with existing businesses, such as Dresser Inc., which the GE Energy unit agreed to buy for about $3 billion in October.
“There are good opportunities out there” for acquisitions, Immelt told investors on an October conference call. “If we don’t see good opportunities, we’ll increase the dividend and do more buyback.”
Immelt, 54, is poised to break a five-year streak in which GE shares have trailed the Standard & Poor’s 500 Index.
GE climbed 13 percent this year through yesterday, while the S&P 500 gained 11 percent. The shares rose 12 cents to $17.25 at 10:28 a.m. today in New York Stock Exchange composite trading.
Immelt has staked GE’s industrial growth on developing and manufacturing promising technology products, from gearless wind turbines to cancer-treatment tests. The company will spend $20 billion on technology development in the two years through 2012 and said in May it would increase research expenditures 18 percent this year alone.
Equipment orders climbed 9 percent in the third quarter while the backlog was flat at $172 billion as Immelt shrank the company’s finance unit and focused on expanding core industrial divisions. The company is the world’s biggest maker of power- plant turbines, jet engines, medical-imaging equipment and locomotives. Other units include appliances, lighting and factory automation software.
In 2012, Immelt plans to reduce GE Capital’s assets to $440 billion in ending net investment, a measure used by analysts to gauge the financial division’s size, from about $489 billion in the third quarter.
The finance unit still plans to resume an internal dividend payment to the parent company that year at its traditional rate of 45 percent of profit, Michael Neal, the unit’s chief executive officer, said this week in a presentation for investors broadcast on the Internet. That dividend was suspended in the midst of the financial crisis.
Neal, who called the plan “prudent” amid changing U.S. and global regulations, didn’t rule out a one-time dividend payment to the parent company in the meantime.
Neal projected the unit’s earnings will growth further next year and in 2012. Last year, its profit dropped about 80 percent to $1.7 billion.
GE will consider opening talks on an early buyback of the $3 billion in preferred stock bought by Warren Buffett’s Berkshire Hathaway Inc. during the crisis, if Buffett is agreeable, after the sale of GE’s majority stake in NBC Universal closes, Chief Financial Officer Keith Sherin said in October. That would save the company an annual 10 percent special dividend payment, or about $300 million.
GE cut its shareholder payout from $1.24 a year in February 2009, saying the move would save about $9 billion a year as the global recession and credit crunch drained profit from the finance unit.
In March of the same year, Standard & Poor’s Ratings Services trimmed the company’s credit ratings to AA+ from AAA, the highest available. Moody’s Investors Service followed the same month with a reduction to Aa2 from Aaa, its highest.
“They need to do something for their stockholders and they for sure will do whatever they can to keep their AA-plus rating,” said Joel Levington, who follows GE as part of his job overseeing corporate credit at Brookfield Investment Management in New York.
A dividend raise would “find a solution for everybody,” he said.