NEW YORK (TheStreet) -- General Electric (GE), the world's largest conglomerate in terms of market capitalization, is an extremely diversified company that operates in a number of different market segments. Despite the fact that the financial crisis of 2008 almost pushed the company to bankruptcy, it has managed to emerge as a strong company. GE has been quite an attractive stock for investors over the years owing to a multitude of factors.
One important factor that analysts try to evaluate is whether or not a stock is a high yielding one. Dividend yield is basically the company's dividend relative to its share prices. It can also be considered as the return on investment if there are no capital gains. A high yielding stock basically has a dividend yield higher than the benchmark average or that may have a lower share price. However, there is no universal definition of a high yield. While some investors may find a stock high yielding, others may find it low yielding.
As things stand, GE has a dividend yield of 3.33%. This can be considered a high yield by some investors and vice versa. A number of factors can determine whether or not General Electric is a high yielding stock.
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Valuation of the Stock
A high dividend yield results in an undervaluation of the stock. This is because the stocks dividends, when compared to the stock's price, are higher. A company's enterprise value/EBITDA multiple can reveal whether it is undervalued or not. An evaluation of General Electric's enterprise Value/EBITDA multiple reveals that the company is undervalued. This is a major factor that points towards the fact that GE is a high yielding dividend stock.
A misconception is that a high yield stock cannot be a high dividend growth stock at the same time. However, this is mere misconception - a high growth stock can be a high yield stock too. General Electric is one such stock. GE reported growth in its dividends continuously over the last three years. It recently increased its dividend by 16%. At the same time, GE is one of the highest yielding stocks amongst global conglomerates.
Growth and Expansion
In order to be able to maintain a high dividend yield, a company needs to make sure that it is constantly increasing its earnings as well. In the case of GE, there is no denying the fact that the company has several expansion plans that have been executed or are in the process of being executed. For example, the company's deal with Alstom has been a major expansion program.
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GE could be on the edge of a major breakthrough in fuel cell energy generation, this news seemed to fall on deaf ears. The information regarding the new power product was derived from this report. Fuel cell energy generation has been the holy grail of power generation for many years. The new power generation threw Fuel cell startup could spark a revolution.
GE Is 'Cooking' Oil in Canada
GE is well known for its expansion plans and research policies. It seems like the company never grows tired of expanding into new market fronts and multiple segments. GE has been showing more than usual amount of interest in Canada. This leaves buyers speculating about what the company has in mind for Canada and what the impacts of this planning will be for the investors of the GM Globally.GE has managed to find a place for itself in Canada for development of oil sands. Oil sands are becoming an increasingly famous source of oil in the world lately.
Expanding into this sector comes with endless opportunities for GE. Investing in Canada at present will also further create possibilities for the company at a global level
GE's Discovery May Transform LED and LCD Display Industry
GE could be on the edge of another major breakthrough regarding a new A light-emitting diode "LED" technology that could vastly improve the colour and sharpness of LED and Liquid Crystal Display "LCD" displays for everything from cell phones and phablets to TV sets, according to GE Reports.
"A large part of how we see colors boils down to the spectrum of light emitted by the source. (Although light appears white, we can see its colored components corresponding to the particular wavelengths during a rainbow.) Of these colors, the red has been the most elusive to produce. Deep red makes other colors like green and yellow more vivid. But to the human eye, it appears dim since it moves quickly to the invisible, infrared part of the spectrum." Setlur states, "For a long time, we had to choose between brightness and appearance. The result was a compromise that yielded displays and screens with a broad red profile with enough brightness, but also washed out yellows, greens and oranges."
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If this new born technology is adopted as the new standard in display screens, this could be a billion dollar windfall for GE in my opinion.
Investors welcomed GE's first quarter performance as it exceeded expectations. The first quarter earnings were 33 cents per share were which exceeded expectations by a penny. The one-year earnings per share growth rate is a decent 7.43%. All these figures reveal that the company is managing to perform fairly well owing to which increasing dividends per share is not a problem for the company. Even if the share prices do increase in the future, the dividend yield will still remain high because the dividends too would continue to increase.
Second-quarter earnings of 39 cents a share were an 8% improvement from last year. Revenue may not have been as high as expected, missing consensus by $110 million. However, revenue still increased by 3%. The industrial side, however, showed accelerated year over year growth as organic revenue increased 5% and segment profits increased 9%. The company's backlog orders increased to $24 billion.
Comparing all the data to previous periods, all segments reported growth. Aviation was on top of the list due to the current jet engine upgrade trend. If all goes according to expectations, the ALSTOM (ALSMY) acquisition will close during 2015 which will further increase EPS. Around 6 cents to 9 cents will be added to EPS by 2016 with these assets. The Synchrony Financial, a transaction that is much awaited, is also expected to happen by the end of July.
A company's dividend yield depends on both its dividends as well its share price. In this case, both these factors are favorable for a high dividend yield for GE. At the same time, the future looks bright in terms of high dividend yield for the company as well, since these trends are expected to continue in the years to come.
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At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates GENERAL ELECTRIC CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate GENERAL ELECTRIC CO (GE) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- GE's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- GENERAL ELECTRIC CO has improved earnings per share by 12.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GENERAL ELECTRIC CO increased its bottom line by earning $1.47 versus $1.38 in the prior year. This year, the market expects an improvement in earnings ($1.67 versus $1.47).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Industrial Conglomerates industry average. The net income increased by 13.2% when compared to the same quarter one year prior, going from $3,133.00 million to $3,545.00 million.
- 49.83% is the gross profit margin for GENERAL ELECTRIC CO which we consider to be strong. Regardless of GE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.87% trails the industry average.
- In its most recent trading session, GE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: GE Ratings Report