Why I’m Not Selling My GE Shares

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On Monday, the Dow Jones industrial average leapt more than 250 points. But it was no thanks to General Electric, one of the venerable stock index’s 30 components, and which saw its shares decline modestly.

Again.

It’s been that kind of year for GE, whose stock price has dropped more than 23 percent this year. It’s by far the index’s worst performer, the so-called “Dog of the Dow.” And the past two months, in particular, have been brutal:

  • There was a poor, but not entirely unexpected, second-quarter earnings report in mid-July. That led to CEO Jeff Immelt to announce his resignation. I was starting to become increasingly convinced that he would get in 20 years, just like his predecessor, Jack Welch, and just like his predecessor, Reginald Jones. It was looking like a GE thing. Hire a CEO at 45, and let let him ride it til the end.
  • In mid-August, it was revealed that Warren Buffett’s Berkshire Hathaway had sold all of its (remaining) shares. Of course, there are people who think everything Buffett touches is gold, and everything he rejects is junk — which in turn plays a large role in why his moves end up looking better than they might otherwise be. The copycats give his investment performance a nice little tailwind.
  • Later came word that the company would make $2 billion in non-specified cuts. Boston Mayor Marty Walsh made sure to insist that any action regarding personnel would not affect the number of people (reportedly about 800) coming to Boston in the headquarters move. We’ll see.
  • And finally, several analysts have warned GE will cut its dividend for the first time since 2009, when it slashed the quarterly payout from 31 cents per share to 10 cents. Ouch.

Again, that’s just in the past two months. Shortly before that, analysts began cutting their ratings, in at least one case to “Sell.” They made some noise about sluggish organic growth. Weak cash flow. Face it, the days of former Prudential Securities analyst Nicholas Heymann cheerleading Welch’s every move are long over. 

By the way, I am a GE shareholder. It’s one of two (Johnson & Johnson is the other) that I acquired as part of a dividend reinvestment program nearly a decade ago. And while I am mildly concerned about the potential dividend cut, I have no plans to sell my holdings (and it goes without saying, said holdings are far more modest than were Mr. Buffett’s).

Why?

I guess I just think that GE is too broadly diversified, with holdings in aviation, power, health care, water treatment and, yes, even still light bulbs. It’s too technically sound and its management is too deep and, frankly, too good for this iconic conglomerate to just die. New CEO John Flannery has a lot of problems to solve, but I really think he’s going figure most of them out.

I’ve dealt with a dividend cut before and while I don’t like it, it doesn’t have to be the end of the world. I mean, look at Chrysler a generation ago. It stopped paying dividends altogether in 1980, and didn’t restart them until 1984. It sustained a bankruptcy and a humiliating bailout from the federal government. Yet by 1997, its dividend had roared to $1.60 per share annually — more than half its share price from 20 years earlier (split adjusted).

GE is a hell of a lot better company than was Chrysler, a one-trick pony that was No. 3 in its specialty — making and selling cars.

In my dividend reinvestment plan, I bought 10 shares of GE in May 2008, and paid $32.40 apiece. The dividend then was the aforementioned 31 cents per share quarterly, for a yield of 3.8 percent.

The following year the dividend was cut to 10 cents quarterly (Great Recession, mind you). The share price plummeted to less than $6 at one point, but I kept on reinvesting the dividend payout. I also threw an occasional and spare $100 at it, recognizing that this company simply was not going to fail. It was not WorldCom or Webvan or even AIG. It’s a diversified conglomerate that makes and sells real things — in some cases, very complicated things, like wind turbines, aircraft scanners and CT scanners. Things that make it impractical to attract much competition.  

Today my shares (I now have about 35 of them) sell for a little less than $24. That’s not a good capital return from 2008 — down more than a quarter. But it’s a pretty terrific one from the depths of the spring of 2009. And I’m getting a 4 percent yield while I wait for the dust to clear on this most recent “crisis.” And I really believe it will.

Besides, MSNBC loud-mouth Jim Cramer said this week that GE is “not yet a buy.” Doesn’t that tell you “buy”?

GE recently announced that Mr. Flannery will make his first official report to investors. I look forward to it. And in the meantime, I may even find another $100 to throw at my dividend reinvestment plan.   

 

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