General Electric Company (NYSE:GE) steadily pays out dividends to its shareholders. The payout amount has been increasing year over year for three years in a row. The annualized dividend paid to the shareholders in 2010 was $0.46 per share, but the company raised the annualized dividend in 2011 by 32.6% to $0.61 per share. The dividends got a further boost in 2012, to $0.70 per share.
On May 20, General Electric Company (NYSE:GE) received a $6.5 billion dividend payment from General Electric Capital Corporation [GECC]. This was in line with General Electric Capital’s planned dividend payback to General Electric Company (NYSE:GE) at 30% of its total earnings. For the first quarter dividend, GE Capital has already paid out $447 million to General Electric. It plans to pay an additional $4.5 billion in special dividends this year.
General Electric Company (NYSE:GE) plans to spend $10 billion in share purchases. It also will pay about $7.5 billion in dividends. Thus, the total amount General Electric will spend for its shareholders will be around $17.5 billion in this year alone.
At present, General Electric’s forward dividend yield is 3.6%. This makes the stock quite attractive, since its yield is well above the 10-year US Treasury notes rate. On top of that, the stock has had positive momentum since 2009. The shareholders gained about 10% this year alone.
General Electric vs. Berkshire
While there are many dividend stocks to choose from, General Electric is one of the best candidates for investment. Its dividend payout is consistent year over year. It is a stable company as well, with a solid market capitalization of $243.7 billion. It has a P/E ratio of 16.26 and a return on equity ratio of 12.17%. In the first quarter of 2013, General Electric earned $145.62 billion in revenues with a net income of $15 billion. General Electric’s profit margin stood at 9.71%, while it is enjoying 16.20% quarterly earnings growth year over year.
General Electric is one of the dividend stocks of Warren Buffett through Berkshire Hathaway Inc. (NYSE:BRK.B). Berkshire Hathaway Inc. (NYSE:BRK.B) owns about 600,000 shares of General Electric as of last quarter, worth about $13.8 million. However, General Electric comprises only 0.02% of Buffett’s total holdings. Over that last two years, Buffett massively sold many shares of General Electric. During the first quarter of 2012, he owned about 7.7 million General Electric shares. Today, his ownership of General Electric represents only a fraction of his 1Q 2012 General Electric portfolio.
Nevertheless, General Electric is still a part of his 41-company portfolio. Therefore, Warren Buffett still believes in the income-earning capacity of General Electric. However, another industrial giant, General Dynamics Corporation (NYSE:GD), is also worth considering, as it may provide better dividend earning opportunities.
General Electric vs. General Dynamics
Another company with an attractive dividend history is General Dynamics Corporation (NYSE:GD). General Dynamics has steadily increased its annualized dividend since 2006. For the last 3 years, the increasing annualized dividends were $1.64, $1.83, and $2.51 in 2010, 2011, and 2012, respectively. The fiscal year 2012 saw the highest dividend growth at 37%. The dividend growth in 2010 was 11.5%, while the growth rate weakened to 9.3% in 2011.
Unlike General Electric, General Dynamics is a medium-cap firm with large room for growth. Its market capitalization is $27 billion, while its P/E ratio is nil since it posted negative earnings of $325 million. For investors, the returns are quite disappointing since the return on equity is -2.56%. Likewise, its profit margin is -1.04%.
On the trading floor General Dynamics has a more unstable trend, experiencing 3 major dips within 6 months. However, there were 3 major leaps as well. But year-to-date, General Dynamics shares gained 10.4%.
General Electric vs. GlaxoSmithKline plc (ADR) (NYSE:GSK)
Another dividend stock pick of Warren Buffett is GlaxoSmithKline plc (ADR) (NYSE:GSK) . GlaxoSmithKline paid a higher annualized dividend compared to General Electric. Just like General Electric, the payout amount is also increasing year over year. In 2010, the annualized dividend of GSK was $1.9987. In the following year, the annualized dividend was increased by 10% to $2.2057 per share. Another increase was seen in 2012 to $2.4773 per share with 12% dividend growth.
GlaxoSmithKline is a financially stable company with a solid market capitalization of $126.45 billion. The P/E ratio of GSK is 19.08, while its ROE is notably higher than General Electric’s at 51%. Its revenue for the first quarter was $42 billion and its net income stood at $6.78 billion. GlaxoSmithKline ‘s profit margin was 16%, but its quarterly earnings growth is -26%.
Summary
Among the mentioned names, GlaxoSmithKline has the highest yield at 4.3%. General Electric comes next with 3.6% yield, while General Dynamics has yield of 3%. GlaxoSmithKline is a relatively more defensive stock compared to General Electric, as the healthcare sector is more resistant to global economic downturns. This makes it an ideal investment for conservative investors.
On the other hand, General Electric could be a good play to invest in global economic recovery. While its yield is lower than that of GlaxoSmithKline, General Electric’s dividend growth rate is substantially higher. If the growth rate is maintained, General Electric will have similar dividend returns in the near future. Also, General Electric got more ‘strong buy’ ratings from the analyst firms. I think General Electric has shown an incredible turnaround since the financial crises, and is likely to keep its performance in the next few years.
The article General Electric versus Two Alternatives originally appeared on Fool.com and is written by Nur Tarkak.
Nur is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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