We all agreed that on the surface the news was good for GE and stocks in general, but several committee members voiced a surprising concern.
First let me share the positive implications we believe GE's dividend actions signal.
- Their loan loss ratios in GE Capital (35% of the company) must be improving faster than previously expected. This would be good news for both GE and the US economy.
- An up-tick in their long-cycle industrial sector (jet engines, healthcare electronics, and power generation) may be underway. Better news in these industries would be very good news for US trade balances with developing nations.
- Short-cycle businesses (appliances and electrical system equipment) may have bottomed. This would be modestly good news about US consumer spending.
We were surprised and delighted by GE's second dividend hike, and because GE is so large and so broadly diversified across the US economy, we believe many other companies may also be experiencing better-than-expected results. This would portend more higher-than-expected dividend hikes. And since our theory is that dividend hikes are the best sign that a business is growing, a spate of better-than-expected dividend hikes should also lead to higher stock prices.
The surprising concern that arose in our discussions was the possible negative implications of the dividend news. Two of us voiced the concern that because Jeffrey Immelt, GE CEO, has become so unpopular among many investors and analysts, the dividend hikes may only be his attempt to win favor with his constituents. This line of thinking didn't go far because one of the committee members reminded us that CEOs don't dictate dividend policy. That authority belongs to the board of directors.
The surprising concern that arose in our discussions was the possible negative implications of the dividend news. Two of us voiced the concern that because Jeffrey Immelt, GE CEO, has become so unpopular among many investors and analysts, the dividend hikes may only be his attempt to win favor with his constituents. This line of thinking didn't go far because one of the committee members reminded us that CEOs don't dictate dividend policy. That authority belongs to the board of directors.
The chart at the top of the page shows that GE is stair-stepping its way higher. The recent new, intermediate high signals the stock may attempt to move higher over the near term. If our notion that GE's business is improving starts showing up in their earnings, we could soon see GE take a run at a new 12-month high.
We own the stock. Do not make investment decisions based on this information. Please consult your personal financial advisor.
