By Al Root
All three companies bearing the General Electric circle-and-script logo are paying quarterly dividends again after GE Vernova initiated a payout at its investor day this past week. It's another milestone on the road to recovery for what was once the world's most valuable company.
GE's reputation -- and its market capitalization -- have taken some hits over the past few years, forcing the breakup of a company that had been a symbol of American business dynamism before falling on hard times. GE HealthCare Technologies, the first to be broken off in January 2023, declared a dividend in April 2023 and now pays 3.5 cents a share. GE Aerospace, which never stopped paying a dividend but came close when it slashed it to a penny -- or eight cents on a reverse-split-adjusted basis -- now pays 28 cents a share. GE Vernova finally joined the club with a 25-cent payout set to debut in the first quarter of 2025.
Add them all up, and the former GEs will be paying 56.5 cents a share to investors each quarter. That's a far cry from the quarterly $1.92 GE paid in 2017, adjusted for a 1-for-8 reverse stock split in July 2021, and it looks even worse given that GE investors got one share of GE HealthCare for every three shares of GE and one share of GE Vernova for every four shares of GE, which makes the comparable payout 35.4 cents a share. That's how bad things were at GE before Larry Culp arrived as CEO in late 2018.
All that, however, is old news, and investors should take comfort in what is happening with the payouts now: GE Aerospace hiked its dividend 250% in April; GE HealthCare raised its 17% in November; and GE Vernova, which was supposed to be the problematic piece of the split, feels good enough about its future to start a regular payout.
It's hard to argue that the breakup has been anything short of a wild success. The combined market capitalization of the three GE names is north of $300 billion after bottoming out for the year at roughly $60 billion in December 2018, which was down almost 90% from the peak reached in August 2000.
There's reason for continued optimism. For starters, analysts like all three stocks. Growing demand for electricity amid an AI data center boom has made GE Vernova stock a Wall Street darling. Earnings are expected to grow about 60% a year, on average, from 2024 to 2028 as margins improve and sales grow at mid-single-digit percentage rates. Overall, 76% of analysts covering the stock rate shares Buy. The average analyst price target for Vernova shares is about $355 a share, about 11% higher than recent levels and up from about $180 at the time of its spinoff.
Rising demand for commercial air travel has done the same for GE Aerospace, with 90% of analysts covering the company rating shares Buy. The average price target is $212, up 24% from recent levels. Its earnings are expected to grow about 17% a year for the coming few years.
GE HealthCare isn't expected to grow earnings like GE Aerospace or GE Vernova -- analysts are looking for about 10% average annual earnings growth -- but it's still relatively attractive, with shares trading for less than 18 times 2025 earnings estimates, below the S&P 500's 22 times. About 60% of analysts covering the company rate shares Buy, and they have an average price target of about $97 a share, up about 18% from recent levels.
And don't forget, the GEs will keep returning cash to shareholders. The dividends at the three companies will use about $1.5 billion in cash this coming year. That's only 15% of their combined projected 2025 free cash flow, well below the average industrial company's 40% rate. With payouts looking secure and expected to rise, investors can feel confident holding any or all of the stocks for the long run.
Write to Al Root at allen.root@dowjones.com
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(END) Dow Jones Newswires
December 13, 2024 21:30 ET (02:30 GMT)
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