GE capital provides lending, leasing, and financial services for everything and everyone from healthcare to consumers. GE capital also recently announced that it would be providing its parent company with a whopping $6.5 billion in dividends this year. Mr. Immelt commented that:
“This announcement is consistent with our goal to reduce the overall size of GE Capital and for it to return significant cash to GE.”
GE’s financial arm also explains why the company seems to have so much debt:
Many would deem a good portion of GE’s debt (that relating to financial services) as “good debt” because it is making big money for GE capital, but when the good times turn, like in the financial crisis, debt is debt and can be very pesky to share prices and dividends. GE does plan, however, to reduce the size of GE capital and become less reliant on it in the future.
The bottom line
Emerson and Honeywell, the smaller players, appear to pay out “safer” dividends, and appear to have recovered much better than GE since the financial crisis:
They are also more expensive and offer lower yield than GE, however.
General Electric Company (NYSE:GE) looks like the best deal here from a pure valuation perspective, and if the company does indeed continue to reduce its dependence on its financing arm, it could be a steal at current levels–especially if the company remains shareholder-friendly and continues to increase its dividend. GE in the financial crisis seemed more like a rock-solid, industrial blue-chip dragged down by a drowning bank. Reducing GE Capital’s size should also reduce the chance of further share price collapses and dividend cuts. General Electric Company (NYSE:GE) is also aggressively expanding into oil and gas, which should provide ample growth in the future.
General Electric is a great turnaround story, stepping into the digital age with their “industrial internet” plans and their increasing footprint in the natural gas revolution; it is also cheap in relation to its smaller peers, which makes it a great buy at today’s levels.
The article Is GE the Best Industrial to Buy Now? originally appeared on Fool.com and is written by Joseph Harry.
Joseph Harry owns shares of General Electric Company. The Motley Fool recommends Emerson Electric Co.. The Motley Fool owns shares of General Electric Company. Joseph is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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