GE’s Finance Unit: Maybe Jettisoning It Is a Bad Idea, After All
There’s been little love lost between General Electric (GE) investors and GE Capital Corp., the financial unit that wiped out a huge chunk of the industrial conglomerate’s value in post-9/11 years. Calls for GE to sell off huge parts of the finance division, which is essentially one of the country’s biggest banks, still reverberate among investors who want a more straightforward industrial play. But ironically, GE Capital is a key reason GE shareholders are a lot happier today than they were this time last year.
GE Capital is posting its best financials in years, and it is showering GE investors with the fruits of that bounty. The capital side recently paid GE a $4.5 billion special dividend, and it reinstated a $475 million quarterly dividend to the parent company. Going forward, GE Capital will pay 30% of its earnings as dividends to GE, which adds up quickly in a business that reported $2.12 billion in segment profit last quarter alone.
That’s about 36% of total segment profit for GE, and the money has gone toward rebuilding a corporate-level dividend that was cut in 2009 — the dividend yield, at nearly 3%, isn’t bad — and to reinvigorating GE’s share price with stock repurchases. Both efforts have helped drive up GE’s share price to 52-week highs.