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GE – No Longer the Brightest Bulb in the Shed

GE – No Longer the Brightest Bulb in the Shed

Update: Despite its recent dividend cut, as of January 1, 2018, GE is one of the 10 highest-yielding stocks on the DJIA.

 

General Electric whose old slogan was We Bring Good Things to Life is apparently no longer bringing good things. One of America’s oldest and greatest companies is not having a good year. Or decade. Or couple of decades.

You know GE – THE light bulb company. And the original sponsor of the outdated, yet still kinda cool, Carousel of Progress at Disneyland.

On Monday, GE announced it will enter into a reset year in 2018. And GE slashed its dividend in half. The company has only cut its dividend twice since 1899, and one of those times was in 2009, during the Great Recession, when dividend cuts were the norm.

As a personal finance blogger, I know it’s dangerous to get too emotionally attached to a single stock. It’s dangerous to your bottom line and dangerous for your peace of mind. But I have a personal attachment to GE.

And that’s why I’m taking this downfall so hard.

Reason 1

In the little southern town where I grew up, GE had a large presence. The GE transformer plant was comprised of multiple office and manufacturing buildings covering 115 acres. It was its own little town within a town. There were hundreds of homes built in the area to house the thousands of workers. There was a school, a couple of churches (Baptist and Methodist of course), a credit union, a drug store, a post office and a mom-and-pop grocery store. Everybody in my small town knew somebody who worked at GE.

Like many others, GE relocated its manufacturing facilities in the 1980s and officially abandoned the site in 1997, 40 years after it was built. It has since been revealed that polychlorinated biphenyls, PCBs, used to cool the transformers have been found on the site. PCBs were banned by the US government in 1979 as a possible carcinogen.

These chemicals made the ground surrounding the plant toxic and rendered the land and buildings uninhabitable and unsuitable for any use. For over 25 years, the site was completely abandoned.

It’s pretty creepy to see that much land and buildings with no activity. It seems frozen in time. When I drive by it, I think it would make an awesome haunted warehouse at Halloween. Except of course, for the toxic chemicals. Which is even too scary for Halloween.

Still GE was a big part of my life growing up in that small southern town.

Reason 2

A large part of our investment strategy revolves around dividend stocks. In January of this year, we invested all of the proceeds from a home sale in the 10 highest yielding stocks in the DJIA, a.k.a. the Dogs of the Dow.

GE was not included in this group when we invested in the Dogs. But with its high yield of 4.6%, it was sure to be included in 2018. It had moved to the 2nd highest dividend yield of all 30 stocks in the DJIA, 2nd only to Verizon.

Then on Monday, GE slashed its dividend in half. Completely knocking it out of contention for a spot on the 2018 Dogs of the Dow. Update: Despite its recent dividend cut, as of January 1, 2018, GE is one of the 10 highest-yielding stocks on the DJIA.

Before Monday, I was so excited about owning a piece of GE, I even thought about cheating on our investment strategy. I considered selling all of our shares of Boeing (up 70% YTD) and Caterpillar (up 45% YTD) and investing in GE, rather than waiting until the beginning of next year. Based on their current dividend yield, Boeing and Caterpillar will be out of the Dogs in 2018.

What went wrong at GE?

GE’s downward slide is not new. It has been the worst performing stock in the DJIA since 2001, when its share price was at an all-time high of $60 per share. The stock now trades under $20 per share.

In August, fed-up investors forced CEO Jeff Inmelt to step down, naming John Flannery as new CEO. Before Inmelt, famed CEO Jack Welch ran the company from 1981 until 2001. He attained cult-like status by growing GE’s valuation by 4,000% during that time.

GE has a long and storied history. When the DJIA was introduced in 1896, General Electric was one of the 12 original companies listed. And it is the only one of the original companies still listed on the DJIA.

During the past several decades, GE has diversified into multiple industries from aviation to capital to renewable energy and transportation.

The problem for GE is that most of its ventures are not profitable. On Monday, GE announced it would limit its focus to only three of its current businesses: aviation, healthcare and power.

It looks like it’s lights out for GE light bulbs. At the very least, the future of the business certainly looks dim.

What does GE’s dividend cut mean for dividend investors?

GE is one of America’s most widely held stocks. It is a stalwart stock of many investment portfolios, especially retirees who rely on consistent dividend payments.

This dramatic dividend cut is a grim reminder to investors that dividend cuts can happen to even the most aristocratic of dividend stocks.

Overall however, the dividend picture for other corporate giants remains strong. So far this year, companies have produced record earnings with good cash flow, making the GE dividend cut an outlier.

Can GE return to its former bright spot in the list of dividend aristocrats?

For the sake of a great American company, I hope so. But only time will tell if GE can find the light at the end of this long dark tunnel.

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4 thoughts on “GE – No Longer the Brightest Bulb in the Shed”

  • GE is spread to thin in to many industries, GE is the jack of all trades but no longer the master of anything. Most of the industries they have their fingers dipped in face strong competition from smaller companies with a more strategic and focused plan to beat out the competition. I have a small investment in GE and I am hoping they can start regaining traction again. Very informative article. Thanks.

  • Hi Cindy, thanks for posting a response to my MI 27 article on ESI. I responded to your message on that site. I put my own comments about GE which I will include here:

    “Flannery is no Welch but he is a lot closer to it than Immelt ever was. I know Jeff and worked for him when he ran GE Healthcare. He was a solid leader in that business but certainly over his head when it came to running the entire company. I blame the BOD for not being more assertive and addressing the leadership issue years ago when things had a better chance to turn around. Jeff was a good salesman and I guess he had them convinced he was on the right track. His downfall was surrounding himself with poor leaders and “yes men,” selling and buying the wrong businesses at the wrong time and just plain bad luck and overall timing on virtually every decision he ever made. He was always too late to the party when it came to his decision making and the company has paid a dear price for all of his mistakes. The culture became very arrogant and paralyzed with too much bureaucracy and too much control across a very small circle of advisors. They used to write great case studies about the Welch era in business schools and what went right at GE. Going forward, many of these case studies will be based on what went wrong at GE under Immelt’s leadership.

    I too hope Flannery can turn things around and return GE to some semblance of what it used to be. Unfortunately, he has a very high mountain to climb. Maybe you can write an article on what we should all do with our stock 😉 I’m glad you didn’t cash in your winners and invest it all in GE like you mentioned in your post. My wife and I still sit on quite a slug of shares and will probably continue to hold on a while longer to see if Flannery’s strategy starts to take hold.”

    • It’s always interesting to hear the perspective from a company insider. Thanks for your analysis.

      My husband and I are always amazed at the business articles about his current employer. We have found that there is always a tad of truth to the stories, but they are never 100% accurate.

      I had one more tale about GE that I did not include in the post. Back in the 60s and 70s, the company store sold barrels of the liquids (used to cool the transformers) to the employees. They would take the stuff home and use it for weed control and bug repellent. You think someone would have figured out that if it kills bugs and weeds that it can’t be good for humans!

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