With the dividend cut that came today, most people would probably wonder why I would consciously decide to keep my position of 100 shares in GE. Frankly, it was a very tough decision that actually caused me to look through the books again to make sure that I didn\’t want to sell.
When I Bought
Buying into GE in early January was a decision that I made as an investor, not a Trader. I believe that America needs the innovation and production that GE offers offers hope for America. GE also at the time had a nice ~10% dividend yield that I believed was likely to continue based on the prevalence of GE investors so dependent on that dividend.
But More, they\’re fixing their financial problems:
You probably saw all of this in November when the commercial paper market went to smithereens and GE announced that they had definite restructuring plans for GE Capital to become less dependent on the short term debt and to also reduce the liabilities of GE Capital. GE Press Release on Restructuring Finance
I\’ve started realizing over the last year how much I actually like GE (see NBC programs) In fact, most of my room mate\’s and my favorite shows are produced with Heavy GE Involvement: House, The Office, 30 rock. And I working at JP Turner, CNBC is the source of financial news (on at GT College of Management too.)
So to echo, I\’m very much a fan of production in manufacturing in America (GE Energy, GE Power, GE Healthcare), realize the name brand idea of the previously mentioned segments, and then enjoy the NBC expansions of GE for entertainment and possible cross promotions (ps. 30 rock has a brilliant plan, the \”reality\” of producing and planning all the shows that people should watch.)
GE is also historically a very stable company and has the AAA credit rating to boot; one which Moody\’s reaffirmed late last year, but is also publicly looking at.
Now the big issue is that this is NOT a Trade and possibly lacks some wisdom in market timing. In fact, my position definitely suggests that. So I\’m not recommending that you buy GE in the short term.
Slightly distraught over the dividend:
Alas, what should happen now that the company is looking to pay only 1/3 of their dividend. Institutional investors may jump ship, because unlike the CEOs thoughts that $0.10 dividend/quarter is \”appropriate\” in today\’s market, it really isn\’t as the the costs of capital up as banks can lend less and people are more risk adverse. On the other hand, this legitimately suggests that Immelt will take the steps to prevent needing funds in favor of the business succeeding.
My plan is to keep my 100 shares of GE stock over the long run. Every month I will try to squeeze out some call income out of the money one or two steps for monthly returns near 1%, cutting my cost of investment. In addition, I\’ll collect the (now 6%) dividend as well, and probably reinvest it in these less expensive shares. In the end, I look at owning shares of GE in 5 years and it will be worth more and still be the idea behind American MFG.
Some people claim that GE may be insolvent. These people have not looked at the book value per share ($9.96) or the effective movement in restructuring of GE capital that will help prevent the crisis they looked at with a major part of the company in November 2008.
Finally, I know somebody who was hired last year and currently works for GE Capital, and unlike the friends at hedge funds and investment institutions, he still has a job. Some of my engineering friends are also now considering jobs at GE.