GE boosts dividend as businesses' cash hoard balloons
Could corporate America finally be getting the message about sharing that record pile of cash on its balance sheet?
General Electric Co. on Friday raised its dividend payment to shareholders for the second time this year. The conglomerate lifted its quarterly payout to 14 cents a share from 12 cents, a 17% increase.
That followed a 2-cent boost the company made in July.
GE’s increased generosity is part of a broader trend: Standard & Poor’s monthly tally of dividend payments by public companies showed that 137 firms raised their payouts in November, up 83% from the 75 increases in the same month of 2009 and the most for any month since April 2008.
What’s more, 97 companies announced “extra” dividends last month, meaning payments other than regular quarterly payouts. That was up from 59 extras a year earlier and was the most for any November since 1996, according to S&P.
Many companies have the means to spend -- total cash on their books reached a record $1.9 trillion as of Sept. 30 -- but have argued that there’s no point in expanding their businesses because global demand for goods and services is far from robust.
But if they aren’t willing to spend their cash, there’s always the option of giving more of it to shareholders via dividends, and letting investors decide what to do with the money.
"We are able to increase the GE dividend for the second time this year because of continued strong cash generation, accelerated recovery at GE Capital and solid underlying performance in our industrial businesses through year-end 2010," GE CEO Jeff Immelt said in a statement.
Investors like the sound of it: GE shares were up 58 cents, or 3.4%, to a seven-month high of $17.71 at about 12:30 p.m. PST. The stock is up 17% this year, beating the 9.3% gain in the Dow Jones industrial average.
GE’s dividend still is a shadow of its former self: The company slashed the payout 68% early in 2009, from 31 cents to 10 cents a share, as sales and earnings plunged in the recession.
GE’s stock price collapsed from $42 in October 2007 to a low of $6.66 in March 2009. The company recovered in part with the help of Federal Reserve loans.
At the current stock price GE's dividend equates to an annualized yield of about 3.2%.
Even with the recent jump in interest rates, a 3.2% yield beats the 1.95% current yield on a five-year Treasury note, and isn't much below the 10-year T-note yield of 3.3%.
Also, the deal reached between President Obama and Republican leaders this week would preserve the maximum tax rate on dividend income at 15%. Bond interest, by contrast, is taxed at regular income tax rates.
The tax advantage could be another factor driving money out of bonds and into stocks as optimism about the economy builds.
-- Tom Petruno
Image credit: Gene J. Puskar / Associated Press