Blue Chip Stocks In Focus: General Electric


Blue chip stocks generally have a reputation for high-quality businesses, steady profits, and reliable dividends.

While there is no exact definition for the term ‘blue chip’, we believe it is a company that has paid a dividend for 100 years, and has a current dividend yield of 3%+ more than qualifies.

Companies with more than 100 years of dividends have proven business models, with the ability to navigate difficult economic conditions, and adapt over time.

And, a 3%+ dividend yield indicates a company that cares about rewarding shareholders and offers an above average yield. There are dozens of stocks that fit these two requirements. You can see the full list of blue chip stocks here.

GE (GE) has a 3.7% dividend yield, and has made dividend payments for more than a century.

Even though GE has had a rough start to 2017, its transformation is laying the groundwork for future growth. Combined with a high dividend yield, GE remains a blue-chip stock.

Business Overview

GE is an industrial conglomerate. Its operating segments are as follows:

  • Power (24% of revenue)
  • Aviation (23% of revenue)
  • Healthcare (16% of revenue)
  • Oil & Gas (11% of revenue)
  • Renewable Energy (8% of revenue)
  • Transportation (6% of revenue)
  • Energy Connections & Lighting (12% of revenue)
  • GE reported earnings-per-share of $1.00 in 2016, which was flat from 2015. GE’s adjusted earnings-per-share, which excludes certain non-recurring items, increased 14% in 2016, to $1.49.

    The company is struggling with lower commodity prices, which have weighed on its oil and gas business. Segment revenue declined 22% in 2016. Weak commodity prices will continue to be an overhang for 2017. Because of this, GE is aggressively cutting costs to keep margins steady.

    GE Cost

     

    Source: 4Q 2016 Earnings Presentation, page 6

    This helped operating profit margin rose by 10 basis points in the fourth quarter. Plus, the company can offset declines in oil and gas revenue, with growth in other areas. For example, GE saw strong growth in renewable energy and power, which grew revenue by 44% and 25% in 2016, respectively. GE is also in the process of a management transition. CEO Jeff Immelt recently stepped down. As of August 1st, GE’s new CEO will be John Flannery, who is currently president and CEO of GE’s healthcare business.

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