GE boosts dividend as businesses’ cash hoard balloons
Sitting on a record pile of cash, corporate America is beginning to open its wallet — at least to shareholders.
General Electric Co. on Friday raised its dividend payment to investors for the second time this year. The conglomerate lifted its quarterly payout to 14 cents a share from 12 cents, a 17% increase. That followed a 2-cent boost in July.
GE’s increased generosity is part of a broader trend: Standard & Poor’s monthly tally of dividend payments by public companies showed that 137 firms raised their payouts in November, up 83% from the 75 increases in the same month of 2009 and the most for any month since April 2008.
Many companies have the means to spend — total cash on their books reached a record $1.9 trillion as of Sept. 30 — but have argued that there’s no point in expanding their businesses because global demand for goods and services is far from robust.
But if they aren’t willing to spend their cash, there’s always the option of giving more of it to shareholders via dividends, and letting investors decide what to do with the money.
“We are able to increase the GE dividend for the second time this year because of continued strong cash generation, accelerated recovery at GE Capital and solid underlying performance in our industrial businesses through year-end 2010,” GE Chief Executive Jeffrey Immelt said in a statement.
The dividend boost got applause on Wall Street: GE shares jumped 59 cents, or 3.4%, to a seven-month high of $17.72. The stock is up 17% this year, beating the 9.4% gain in the Dow Jones industrial average.
GE’s dividend still is a shadow of its former self: In a major blow to shareholders early in 2009, the company slashed the payout 68%, from 31 cents to 10 cents a share, as sales and earnings plunged in the recession.
At the current stock price the company’s dividend equates to an annualized yield of about 3.2%.
Even after the recent jump in interest rates, the dividend yields of many blue-chip stocks are competitive with bond yields. For example, a five-year Treasury note now yields 1.95%; the 10-year T-note yield is 3.29%.
Also, the deal reached between President Obama and Republican leaders this week would preserve the maximum tax rate on dividend income at 15%. Bond interest, by contrast, is taxed at regular income tax rates.
The dividend tax advantage could be another factor driving money out of bonds and into stocks.
