GE: Bright Idea for Yield and Value

02/20/2015 8:00 am EST


John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

As far as corporate pedigree and longevity go, you can’t get much better than our latest featured stock, notes income expert John Dobosz, editor of Forbes Dividend Investor.

General Electric (GE) dates back to 1892 as a merger of Edison General Electric Company of New York and Thomson-Houston Electric Company of Massachusetts.

It is also the only surviving member of the 12 original companies listed on the Dow Jones Industrial Average in 1896.

The company’s original business lines were electric light and electricity generation equipment, two divisions that are still central to the company, along with aviation, healthcare, transportation, energy, and capital.

Since GE’s near-death experience during the 2008 financial crisis and $3 billion emergency injection of cash from Warren Buffett, CEO Jeffrey Immelt has been busy reducing the dependency of the company on its financial division, targeting a 25% contribution to revenue this year.

As a result, the company upped its bets on its other business lines, including oil and gas services, an unfortunately timed move that has hurt GE’s financial performance as the price of crude oil cratered since last summer.

For 2015, analysts expect revenue to grow 2.7% to $152.7 billion. Earnings should grow 4.9% to $1.73 per share.

Modest valuations relative to history, along with a plump dividend yield, make now a good time to add this blue chip to your portfolio.

Over the past five years, General Electric has traded for an average of 17.6 times earnings, 24% higher than the present valuation of 14.2 times expected 2015 earnings. At that average P/E ratio, the stock would be trading at $30.45.

Dividends are paid reliably every quarter and they’re often raised. Last year, the company hiked the quarterly payout from $0.22 to $0.23 per share. At this rate, GE is good for a yield of 3.73%. That’s well above GE’s five-year average yield of 3.1%.

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