General Electric Co. (NYSE: GE) was making key dividend news this morning because in the Jeff Immelt annual letter to shareholders the company promised $18 billion to be returned to shareholders this year via dividends and stock buybacks. What was not clear was how it was going to get there.
GE is a true conglomerate, but the standout area of the report that is going to drive this capital will be infrastructure orders. GE has significant assets to divest (or that could be divested). Another big boost will come from continued improvements in GE Capital returning money to the parent company. Still, infrastructure is going to perhaps be the key driver of growth when you break out what GE includes here.
GE Chairman and CEO Jeff Immelt said in his annual letter that about $60 trillion of infrastructure investment is needed by 2030 to support the billions of new consumers joining the middle class in the emerging world and to support developed-market productivity. Immelt said, “About one-third of our infrastructure revenues comes from businesses we weren’t in a decade ago. These include fast-growth businesses like Oil & Gas, Life Sciences, and Distributed Power.”
Industrial is a huge area and Immelt said that services represent about 75% of GE’s industrial earnings. He even claimed a $157 billion of service backlog, and included that GE will lead in the shale gas revolution. Immelt also said, “At $100 billion of revenue with 15% margins, we are the largest and most profitable infrastructure company in the world.”
On that capital plan, GE plans to buy back shares to get the total share count below 10 billion shares so that it is where it was back before the financial crisis. Immelt has already said that he plans to allocate a significant portion of the NBCU cash sale proceeds to repurchase shares. All in all, GE plans to return $18 billion to investors this year through dividend and buyback.
As it stands now, GE’s dividend budget is close to $8 billion in the capital plan. Buying down the outstanding shares is one thing and $10 billion compared to a market cap of about $245 billion is a decent sum of shares being bought up off the market. That being said, a higher dividend represents a significantly more confident stance over a multiyear period.
GE shares are down 0.8% at $23.58 shortly before the close. The annual letter and capital plan are not the culprit behind the drop in GE shares. A downgrade from Nomura to Neutral from Buy did the damage today, although we would make not that GE’s share price was within 15-cents of a multiyear high.
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