GE Capital to Pay $6.5 Billion Dividends to GE (Update 1)

8:09 a.m. ET with morning market action and comments from BernsteinResearch analyst Steven Winoker.

NEW YORK ( TheStreet) -- GE Capital plans to churn out even more cash than it did last year.

The board of directors of General Electric's ( GE) financial services subsidiary said on Monday it planned to pay the parent company a total of $6.5 billion in dividends during 2013, increasing from $6.4 billion during 2012.

GE Capital's regular dividends are planned to be 30% of operating earnings. During the first quarter, GE Capital paid the parent company a regular $447 million dividend to the parent, based on the financial segment's operating performance.

With strengthening credit quality and a shrinking balance sheet, GE Capital plans again to kick large special dividends upstairs, to reduce the financial arm's excess capital. During 2013, GE Capital plans to make $4.5 billion in special dividend payments

GE Capital had $529.5 billion in total assets as of March 31, declining from $573.5 billion in total assets a year earlier. The financial segment has been rumored to be considering selling its private label U.S. credit card portfolio, with loan balances of roughly $31 billion. Bank of America Merrill Lynch analyst Erika Penala suggested earlier this month that Citigroup ( C) would be the ideal purchaser for the portfolio, following the bank's deal to acquire Capital One's ( COF) private label card portfolio, in a deal that is expected to be completed in September.

General Electric CEO said in the company's press release on Monday that GE Capital's announcement "is consistent with our goal to reduce the overall size of GE Capital and for it to return significant cash to GE," and that GE Capital "ended the first quarter with $68 billion in cash, and its Tier 1 common ratio under Basel 1 improved by 65 basis points to 11.1%."

In addition to shrinking GE Capital's balance sheet, which, combined with the improved credit quality and operating earnings has boosted the unit's capital ratios, GE Capital has also taken steps to strengthen its liquidity, in order to reduce its reliance on short-term wholesale funding. Reliance on short-term and overnight funding forced the company to sell $16 billion in commercial paper to the Federal Reserve late during 2008, at the height of the liquidity crisis.

GE Capital in January completed its purchase of $6.4 billion in deposits from MetLife ( MET) subsidiary MetLife Bank. This brought GE Capital's deposits to $49.4 billion as of March 31.

General Electric had $90 billion in cash as of March 31. Immelt said during the company's first-quarter earnings conference call that it remained "committed to returning $18 billion to investors in 2013 through dividends and buybacks" of common shares. During the first quarter, GE repurchased $1.9 billion worth of shares.

GE's shares closed at $23.46 Friday, returning 13% this year, following a 21% return during 2012. The shares trade for 12.9 times the consensus 2014 earnings estimate of $1.82, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $1.66.

Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.24%.

GE's shares were flat in late morning trading on Monday.

BernsteinResearch analyst Steven Winoker rates General Electric "market perform," with a $25 price target. In a note to clients on Monday, Winoker wrote that GE Capital's Tier 1 common equity ratio at the end of March was at "a healthy level that supports the near term sustainability of the GECC dividend."

GE Capital's planed $4.5 billion in special dividends this year is right in line with what Winoker previously incorporated in his earnings estimates for General Electric of $1.62 a share for 2013 and $1.81 a share for 2014.

Winoker added that GE Capital's management team "has weathered the financial crisis well, improving their equity position even while shrinking the asset base and improving the quality of their portfolio."

"Overall, we do like GE's strategic direction, execution appears to beimproving, earnings are growing and capital allocation is still sound," Winoker wrote. "However we still question how much you should pay for the stock."

"We believe something like a 50% premium to tangible book for GE Capitaland as much as 16-17x 2013 earnings do not leave much near term upside," for General Electric's shares, Winoker wrote, "absent market moves and longerterm earnings growth." GE Chart GE data by YCharts

Interested in more on General Electric? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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