Updated to include information on an analyst upgrade on GE shares.NEW YORK ( TheStreet) -- General Electric ( GE)'s dividend used to be a bedrock for investors -- something they could count on year in and year out. That changed with the financial crisis. General Electric cut its quarterly dividend to 10 cents from 31 cents in February 2009, roughly a month after Immelt had said the company planned to maintain it. That prompted an investor lawsuit.
The paradox for GE, according to Heymann, is that to meet this timeline, GE will rely heavily on an earnings rebound at its financial unit, something it has been trying to downplay to investors as it tries to sell itself as a company returning to its industrial roots. "The quicker the recovery in
GE Capital's earnings, the more likely GE can raise its dividend but the more investors fret about the disproportionate share of GE's earnings derived from lower valued financial services," Heymann writes. GE shares were higher for a second straight day on Tuesday following an upgrade from UBS analyst Jason Feldman. Feldman lifted his recommendation on GE stock to buy from hold, citing "improved visibility." "GE raised its dividend twice during 2010, and we expect the dividend to continue to grow roughly in-line with net income. GE has stated that it intends to target a ~45% payout ratio, although we wouldn't be surprised to see it creep slightly higher. We estimate that the current annual dividend ($0.56/share, equating to a ~3% dividend yield) reflects a roughly 51% payout ratio on our 2010 earnings estimate, and a 43% payout ratio on our 2011 earnings estimate," wrote Feldman in his report. In addition to GE, several banks, including U.S. Bancorp ( USB), PNC Financial Services ( PNC), JPMorgan Chase ( JPM), Wells Fargo ( WFC)are expected to begin raising dividends shortly after they get approval from the Federal Reserve. Bank of America ( BAC) also recently said it hopes to raise its dividend next year. Citigroup ( C), in which the government still owns a stake, is expected to take longer than those institutions. While GE did not receive a preferred equity investment from the government, it did receive other forms of government support extended to banks like such as a temporary guarantee of its debt issuance. What's your take? Where do you think GE's dividend will be at the end of next year?
-- Written by Dan Freed in New York.
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