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General Electric's Winning Trifecta

Stocks in this article: GEMA

NEW YORK (TheStreet) -- There's no reason to be shy about buying shares of General Electric (GE). There are three big reasons why I see GE as a win-win-win trifecta.

Reason #1 is that -- not only is it profitable, with an over-$250 billion market cap and a trailing 12-month operating margin of 12% -- GE is downright shareholder-friendly! With its trailing 12-month levered free cash flow of nearly $18.5 billion according to Yahoo! Finance, it can well afford to maintain its 88-cent annual dividend.

Even at Thursday's closing price of $25.81, that's a 3.4% dividend yield to price. That reflects a relatively high payout ratio of 63% of earnings. Analysts on average estimate that the company's  earnings per share will increase by over 11% by the second quarter of 2014.

It's possible that EPS number will be even higher, which would also be good for the share price. Last year the company beat its EPS estimates three out of four quarters. I like the odds for this year. The following one-year chart helps us to visualize how this might unfold.

GE Chart

GE data by YCharts

Shares hit a 52-week high of $28.09 on the last trading day of 2013, but are down over 8% so far in 2014. As the chart illustrates, the company's trailing 12-month return on invested capital needs to follow the uptrend of GE's quarterly revenue per share. Along with the anticipated gains in EPS, the company can maintain or increase the quarterly dividend while boosting the stock price.

That may be why CEO Jeffrey Immelt increased his personal holdings of GE stock by about $3.6 million since Jan. 27 of this year, including a purchase of 104,900 shares at $25.19 on March 3. According to Yahoo! Finance, this increased his stake to over 1.96 million shares. Today that's worth about $50.7 million.

Reason #2 is the pending spinoff of part of its GE Capital finance unit. This spinoff will be handled through an IPO of its consumer lending business. The offering of the company's financial lending unit, which will be called Synchrony Financial is scheduled to take place later in 2014.

This IPO spinoff will be the next follow-through step of GE's promise to exit its non-core financial operations. It could raise as much as $27 billion if shares are valued like other consumer lending companies such as Mastercard (MA), which is currently priced at over 20 times forward one-year earnings. Exactly how shareholders will be rewarded is not totally clear, but they are likely to benefit directly by receiving allotments of the IPO shares, cash or both.

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