General Electric story updated with additional details throughout, including management comments in paragraphs 7 through 11.
NEW YORK (
General Electric investors have been looking forward to a dividend hike, and they may get their wish in the next few days following the conclusion of "stress tests" of the 19 largest banks by the
While neither General Electric nor the Fed have said anything about whether the stress tests include GE, analysts who follow GE have widely assumed the conglomerate's financial unit will be part of the process.
In a report published at the start of the year, Sterne Agee analyst Ben Elias argued fears over the upcoming stress test, formally known as the Comprehensive Capital Analysis and Review, were weighing on General Electric's share price.
Year to date through last week, General Electric shares are up 6.30%, slightly better than the 5.75% rise for the Dow Jones Industrial Average, but short of the 9% rally in the S&P 500.
Still, it is far from clear that investor anxiety over the stress test is what's holding back General Electric shares, since other analysts have been almost unanimous in asserting that the balance sheet of GE Capital is in good shape.In a note published last month, JPMorgan analyst Stephen Tusa wrote that GE's financial unit "has moved from a drag with capital adequacy concerns to a cash 'gusher,' which we believe is being underappreciated in the sum-of-the-parts discussion at GE."
With analysts gushing like that, you figure under-appreciation can only continue for so long.
GE last raised its quarterly dividend in December--to 17 cents from 15 cents.
During the company's fourth quarter earnings call in January, General Electric CFO Keith Sherin downplayed expectations for a further hike in 2012, noting that "we already have increased the dividend for 2012."
Sherin said 2012 would include "a balanced capital allocation plan between buyback and M&A."
But Sherin's boss, GE Chairman and CEO Jeff Immelt, appeared to signal a different set of priorities, suggesting a further dividend hike may well be in the cards.
"We don't need - really we don't need acquisitions," Immelt piped up immediately following Sherin's comments. "I wouldn't look for us to do a big acquisition. We have got a pretty full pipeline of new products, and so I think the emphasis on dividend, reducing the float over time, those take a very high priority."
General Electric CEO and Chairman Jeff Immelt told investors last year that the parent company wasn't reliant on the Federal Reserve to approve a dividend hike, and that one would come regardless of what the bank regulator had to say about capital strength at the financial unit. Still, he is unlikely to have any such difficulty. With Fed stress test result expected at the end of this week, General Electric is widely expected to be at or near the top of the class.
That means GE Capital would likely be allowed to restore the dividend it pays to the parent company, which would free up cash to increase the payout to investors.
"Our objective is, as we shrink GE Capital, is to dividend that excess capital back to the parent. And over the next several years, that could be several billions of dollars," Sherin said during the January earnings call.
Written by Dan Freed in New York
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