GE Raises Dividend for Second Time in 2010: Should You Care?

Last week industrial conglomerate General Electric (GE) raised distributions by 17% to 14 cents/share. Equity investors viewed this boost in a positive way, sending GE stock price higher for the day. This was the second dividend increase for GE in 2010, after the company boosted its payout by 20% earlier this year to 12 cents/share. Dividend increases are typically a bullish sign from companies, which shows their confidence that their business would be able to generate sufficient cash flow in order to pay the higher distribution amount. For GE however, this stunning 40% increase in the quarterly distribution comes after it cut dividends from 31 cent/share to 10 cents/share in 2009 during the financial crisis. Furthermore, investors who are hoping that GE might eventually restore its dividend payment to the 2008 levels, should realize that it might take several years for this to happen.The reason behind this is that in order for a company to function effectively, it needs to reinvest a portion of its earnings back into the business either to expand, innovate or maintain its position in the marketplace. With GE expected the earn $1.12/share in 2010 and $1.27/share in 2011, this puts a limit on the amount of dividends the company could distribute in the near term. That being said, I would wait for a few years in order to see whether General Electric (GE) would be able to generate earnings growth which will support a growing distribution over time.... Read more