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GE Raises Dividend, Confident About 2012 - Analyst Blog

Posted: 12/14/2011 4:40:00 PM
Referenced Stocks: GE

General Electric Company ( GE ) has increased its quarterly dividend to 17 cents a share from 15 cents a share, reflecting a 13.3% increase. This is the fourth dividend increase since September 2010, depicting the company's confidence in its business and its ability to generate strong cash flow, going forward.

The increased quarterly dividend will be payable on January 25, 2012, to shareholders of record as of December 27, 2011.

GE has always been a blue-chip stock which was particularly attractive for its steady stream of dividends. However, during the third quarter of 2009, the severe financial crisis compelled the company to cut its dividend by 68% to 10 cents a share from 31 cents a share.

This was the first time since the company's inception in 1938 that it slashed its dividend. Therefore, this hike in dividend was very much required to regain investor confidence.

During the third quarter of 2011 (the last reported quarter) the company had cash and cash equivalents worth $91 billion, reflecting a 16% increase year over year. However, net cash flow from operating activities year to date declined about 8% compared to the same period in 2010. The decline was due to higher vendor payments, which were up by approximately $1 billion during the first nine months of 2011.  

GE also announced that it expects earnings to grow by double-digits next year, which further strengthens our view that the stock is well worth holding on to. The company believes that despite the continuing volatile economic environment and headwinds in Europe, it is confident about its performance in fiscal 2012.

For fiscal 2012, the company expects overall revenue growth of 5% with an organic growth of 5% to 10%. The surge in revenue is expected to be driven by the company's industrial business due to the strong international demand for deploying renewable energy and of course its new age jet engines.

The company also sees good growth potential in the Energy sector, as GE Energy supplies the most competent and dependable wind turbine fleet in the world, with average utilization reliability of 98.5%. The growing demand for electricity and modern power grids in developing economies is expected to benefit the company. To date, the company has invested heavily to broaden its energy portfolio and further aspires to add smaller bolt-on acquisitions in the $1 billion to $3 billion range.

Its European operations are of course expected to be a drag on its performance moving forward. The company plans to spend about $300 million to $400 million on restructuring its operations in Europe.

We maintain a long term Neutral rating on GE . The company currently holds a Zacks #3 Rank of #3 which indicates a short term (1-3 months) Hold rating.

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