That's What I Call High Yield
05/16/2012 5:09 pm EST
GE could get billions if the plan to resume dividends at GE Capital comes off, which may be lifesaving news for the mothership, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
Shares of General Electric (GE) popped today, May 16, on news that finance unit GE Capital will resume paying dividends—to its parent, General Electric.
GE Capital suspended its dividend payments to GE in 2009 in midst of the global financial crisis. (I added General Electric to my Dividend Income portfolio on February 3, 2011.) GE shares closed up 3.3% after the announcement.
The dividend to GE from GE Capital is a chunk of change, even for a company as big as GE. GE Capital will make a $475 million quarterly payout in the second quarter of 2012 and pay a special dividend of $4.5 billion in 2012. Excluding the special dividend, the goal is to pay out 30% of GE Capital’s earnings in 2012.
In April, GE had told investors that its goal was a 45% payout, but that the exact level was subject to a Federal Reserve review of GE Capital. Before the financial crisis, GE Capital had paid its parent as much as $8.6 billion in annual dividends.
But today’s GE Capital is a smaller part of the total GE business now than it was before the crisis. In 2011, GE Capital accounted for 31% of the company’s total revenue. That’s in contrast to 2007, when GE Capital represented 39% of GE revenue.Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/