General Electric Co moved to raise its dividend by 20 percent on Friday, in a sign that the largest U.S. conglomerate has put the worst of the financial crisis behind it.
The move came sooner than many investors had expected and sent GE shares up 3.2 percent in afternoon trading.
The 2 cent per share quarterly dividend hike, which means the world's largest maker of jet engines and electric turbines will now pay investors 12 cents per share each quarter, still leaves GE's dividend below the 31 cent per share quarterly rate it had in place before cutting its dividend in February 2009.
The new dividend is payable October 25 to shareholders of record as of the close of business on September 20.
The company also said it will resume buying its shares, a practice it had halted on September 25, 2008. It is extending its existing share-buyback plan, which was due to expire on December 31, though 2013. The board has authorized it to buy back up to an additional $11.6 billion in shares.
It did come earlier than expected, said Wayne Titche, co-manager of the AHA Diversified Equity Fund at AMBS Investments in Grand Rapids, Michigan. It's encouraging that they are positive enough with the cash flow and business outlook to do that.
GE last week reported a better-than-expected 16 percent rise in second-quarter profits, breaking a streak of more than two years of declining earnings.
Since then, a steady stream of major U.S. manufacturers -- including fellow blue chips United Technologies Corp and 3M Co -- have posted profits that topped Wall Street's expectations and hiked their forecasts for the year.
AHEAD OF SCHEDULE
We are able to restore the GE dividend at a historical payout level for 2010 earlier than previously anticipated and to extend our share buyback program because of continued strong cash generation, recovery at GE Capital, and solid underlying performance in our industrial businesses, GE Chief Executive Jeff Immelt said in a statement.
GE shares were up 49 cents or 3.2 percent at $15.70 on the New York Stock Exchange on Friday afternoon.
I didn't think it was this quarter, said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire, which owns GE shares. What it tells me is they have a lot more confidence in their cash flow going forward than they had even a couple of months ago.
GE executives including Immelt have been talking about raising the dividend in line with earnings growth since December 2009 when the company signed an agreement to sell a majority stake in its NBC Universal media business to No. 1 U.S. cable operator Comcast Corp .
Analysts had forecast the company could raise its dividend by as much as 25 percent. GE Chief Financial Officer Keith Sherin said last week the company aims to pay out roughly 45 percent of its profit to shareholders through the dividend.
MORE TO COME?
Titche of AMBS said the size of the hike suggested that the company could have plans to raise it again in the coming year, if business conditions hold up.
The fact that this was so incremental implies to me that they may do it even more often than yearly, he said. It would not surprise me to see them incrementally increase it again sooner than a year from now.
Fairfield, Connecticut-based GE expects to end the year with about $25 billion in cash, including the proceeds of the NBC sale. A portion of that is earmarked to buy back the $3 billion in preferred shares the company sold Warren Buffett's Berkshire Hathaway Inc in October 2008.
Debt-ratings agency Moody's Investors Service said on Friday that its current Aa2 rating on the company would not be affected by the increase in the dividend.
GE slashed its dividend by 68 percent during the financial crisis, a move to save the company about $9 billion a year at a time when it needed to conserve cash to handle rising losses at its GE Capital finance business.
The cut, which came around the time that GE lost its coveted triple-A credit rating, had been widely anticipated by Wall Street. Still, investors blasted the move, and dragged Immelt over the coals for about two hours at the company's 2009 annual meeting to decry the cut.
GE shares are up about 30 percent over the past year, outpacing the 13.5 percent climb of the Dow Jones industrials average <.DJI>.
(Reporting by Scott Malone, additional reporting by Nick Zieminski in New York; editing by Gerald E. McCormick and Matthew Lewis)