General Electric’s Dividend Increase Signals Progress For Income Investors

General Electric (GE) announced a 4% dividend increase on Friday, increasing its quarterly payout by a penny from 23 cents per share to 24 cents.

While General Electric’s dividend increase was perhaps smaller than some long-term shareholders desired, it was still meaningful because it marked the company’s first payout raise since late 2014.

However, GE’s dividend payout remains 23% below its peak of 31 cents per share, which ended in early 2009 when the company slashed the quarterly dividend to 10 cents.

General Electric is one of those companies that elicits strong feelings (to put it nicely) from many investors.

The company has a history of overpromising and under delivering, GE’s share price remains lower than it was a decade ago, and the painful dividend cut in 2009 will not be forgotten anytime soon.

Despite these grievances, General Electric’s future prospects could be better than investors have come to expect.

With many investors still focused on General Electric’s “lost decade” and unwilling to trust CEO Jeff Immelt and the company’s portfolio transformation that is well underway, I continue to believe an appealing investment case is building for long-term dividend investors.

In fact, we have held shares of GE in our Top 20 Dividend Stocks portfolio since mid-2015. In my view, GE’s dividend increase marks yet another step in the company’s overhaul.

General Electric’s Transformation

GE’s near-destruction in 2009 was the result of its highly leveraged banking operations (GE Capital), which had extended too far into risky areas for the sake of growth.

While the company avoided bankruptcy, thanks in part to Warren Buffett’s investment (see Buffett’s top high-yielding dividend stocks here), it was shaken to its core.

Fast-forwarding to early 2015, GE began an industrial transformation plan to reduce the risk of its operations and refocus on its strengths.

The plan calls for divestment of non-core financial services assets to increase the contribution of industrial earnings from 59% of total income between 2000 and 2015 to 90% of total income by 2018.

As seen below, GE Capital accounted for a relatively small portion of sales (9%) and profits (9%) in 2015.

GE’s remaining operations are easier to analyze (for a conglomerate, at least) and could result in a higher earnings multiple for the company’s stock, too.

During the company’s third quarter earnings call, GE noted it has “virtually completed” its pivot in financial services with $193 billion of asset disposal signings, nearly hitting its goal to dispose of $200 billion of assets within 18 months.

General Electric’s industrial business is the core profit driver now, and many investors could be underappreciating its value because of GE’s historically complex and rather opaque web of other businesses.