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GE's New Dividend Yield Bodes Ill for Buyers


How low can General Electric (GE) stock go? Plenty lower, if bottom-fishing investors decide a plump dividend yield is a must.

ON-CI532_genera_D_20171113085459.jpg Bloomberg News

On Monday, the industrial conglomerate cut its payment to 12 cents a share each quarter. At $20, that puts the yield at 2.4%. The problem is, there are plenty of prosperous companies with yields in that neighborhood: Caterpillar (CAT) at 2.3%; Intel (INTC) at 2.4%; and McDonald's (MCD) at 2.4%. Those companies enjoy strong competitive advantages and generate massive sums of free cash. GE generates limited free cash for its size and doesn't stand apart from the competition in some key product lines, according to JPMorgan analyst Stephen Tusa, who correctly predicted the size and timing of the dividend cut.

The problem for investors mulling a purchase of GE shares is that earnings estimates seem unreliable, judging by GE's guidance cut on Monday, and by the wide disconnect between earnings and free cash flow. For now, the new, lower dividend payment might give bargain hunters the clearest read on how much to pay for shares. What kind of yield should they demand from a company with GE's challenges? Xerox (XRX) pays them 3.4%. Harley Davidson (HOG) yields 3.1%. Assume GE investors will want a 3% yield, and the share price must fall another 20% to $16.

Shares of General Electric have dropped 4.2% to $19.64 at 10:55 a.m. today.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Investing Ideas
Referenced Symbols: GE , CAT , INTC , MCD , XRX


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