What Will General Electric Company (GE) Do With Its Pile of Cash?

Page 1 of 2

General Electric Company (GE)General Electric Company (NYSE:GE) and Comcast Corporation (NASDAQ:CMCSA) announced Tuesday that Comcast will complete the purchase of former GE subsidiary NBCUniversal by the end of the first quarter in 2013, several years earlier than anticipated. Comcast purchased a 51% stake back in 2011 and will be snapping up the remaining 49%, as well as related properties like the iconic 30 Rockefeller office space, for a total price tag of about $18 billion. Added to the $77 billion in cash by the end of 2012, the industrial giant will have a $95 billion pile of money to deploy. What will it do with it?

Healing scars?
Part of it will be promptly returned to shareholders. On a call discussing the sale Wednesday morning, General Electric CEO Jeffrey Immelt announced that dividends will continue to grow in line with earnings, a policy the company has pursued since being forced to cut its once-legendary dividend in 200
9 by two-thirds, as their overgrown GE Capital unit threatened to bring the blue-chip down in the financial crisis. Since then, the dividend has regained some ground but remains about one-third below pre-recession levels. General Electric would dearly like to restore the dividend in full, and they should do so.

Immelt also announced that an existing share-repurchase program would be expanded to authorize $35 billion in buybacks, with $23 billion remaining. It will accelerate the program to repurchase $10 billion in shares in 2013. I’m not convinced this is wise. Buybacks make sense when shares are selling at a discount, but General Electric just hit a new post-recession high on Wednesday. The aggressive buyback program doesn’t seem to based on management’s belief that this is the best use of capital, but instead by a desire to “make up” for the nearly 700 million shares it was forced to offer during the recession to remain solvent.

GE officials have repeatedly emphasized their goal of getting the share count back under 10 billion, but this seems to me like closing the stable door after the horse has already bolted. Shareholder equity was diluted, and the company had to offer shares at very low prices. Buying them back now after the recovery, at post-recession record high prices, means that GE has adopted the long-term strategy of selling low and buying high, a highly effective method of setting shareholder value on fire. The only good rationale for buying back shares is the belief that doing so is good allocation of capital because shares are undervalued. GE seems instead to believe in share buybacks as a sort of post-trauma therapy.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!