General Electric Company (GE), Johnson & Johnson (JNJ): How Conglomerates Can Stabilize Your Portfolio

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Diversification is an important characteristic of every portfolio. With diversity comes stability. The more diversified you are, the more gains and losses you have balancing things out. The same concept can be applied at the individual stock level.

When a company’s business model spans across multiple markets, it enables that company to endure hardship. If one segment of a business is struggling, sometimes the other segments will thrive, and “pick up the slack.”

We can examine some of the potential benefits seen by these conglomerates. We will look at impacts in respective markets, dividend history and growth, as well as catalysts moving forward.

GE is always at work

source: Yahoo! Finance

* P/E: 17.6X
* Dividend yield: 3.1%
* Payout ratio: 52%

General Electric Company (NYSE:GE) is a conglomerate that touches just about every major industry. GE sells products and services touching the finance sector, healthcare, aviation, oil/gas, mining, industrial and more. GE was one of the hardest-hit companies when the financial crisis came. GE Capital acted as a noose around the company’s neck, almost bankrupting it.

The dividend was cut, and the share price was pummeled as the over-leveraged financial arm of General Electric Company (NYSE:GE) did its damage. The stock price has yet to fully recover and there are some hard feelings with many investors. However, the company has made a drastic turn around that is still in progress.

General Electric Company (NYSE:GE)General Electric Company (NYSE:GE) has drastically reduced its exposure to leverage from GE Capital. It has re-focused on its industrial operations to drive it moving forward. There are over $200 billion worth of orders on back order. The dividend is back, and making a comeback. It is currently at a 3.1% yield, and consumes roughly half of its cash flow.

General Electric Company (NYSE:GE) had good news on its most recent earnings call. GE reported growth in all but one of its industrial segments. In addition to the $200+ billion in back orders, GE saw more growth with orders being up 4% across the entire company. GE has immense cash on hand to drive additional growth through acquisitions as well.

3M provides solutions for many

source: Yahoo! Finance

* P/E: 18.5X
* Dividend yield: 2.1%
* Payout ratio: 37.6%

3M Co (NYSE:MMM) is a conglomerate that has a broad range of products and services. It dabbles in government contracting, office supplies, transportation safety, industrial manufacturing, and healthcare among other sectors.

3M has long been a dividend machine. It has raised its dividend every year for the last 55 years, with the dividend consuming only one-third of 3M’s cash flow. It will likely be raising the dividend for years to come. 3M also ensures you will increase your “buying power” over time, as its 10-year dividend growth rate of 6.6% is a step above inflation.

With a company as mature as 3M Co (NYSE:MMM), you won’t see a lot eye popping growth numbers. However that isn’t necessarily a bad thing. 3M reported 3% revenue and earnings growth over last year. 3M is known to be “innovative” and its management expects to spur growth in developing markets via its healthcare, transportation, and industrial manufacturing segments moving forward.

As the US economy slowly improves, 3M’s office supplies segment will also improve as the unemployment rate falls.

J&J:  A healthcare-dominating company

source: Yahoo! Finance

* P/E: 21.0
* Dividend yield: 2.8%
* Payout ratio: 53.7%

Johnson & Johnson (NYSE:JNJ) is a healthcare conglomerate that offers products and services such as consumer drugs, pharmaceutical drugs, and medical diagnostic services and devices.

Johnson & Johnson is another company with a rich dividend tradition. With 51 years of increasing dividends, you can safely count on a “raise” when investing in Johnson & Johnson (NYSE:JNJ). The payout ratio is only about one-half of cash flow, meaning there is room to grow the dividend and the company at the same time. Its 10-year dividend growth rate is a sparkling 11.7%.

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