Friday, May 23, 2008

added more General Electric

Today I added some more General Electric (GE) to my non-registered portfolio to reduce my Adjusted Cost Base (ACB). Back in December of 2007 in my GE-past success future potential post I detailed what I like about GE as a long term investment.

The reason I added today is purely due to the stock's current valuation...
  • GE is trading at levels not seen since May of 2004; since then earnings and dividends have both been growing nicely
  • Price/Earnings ratio is currently 14.1x
  • Dividend Yield is 4.1%
  • I can currently buy $1 of GE for about 99 cents Canadian

What Does My Chunk of GE Look Like?

  • 127 shares - average cost of $37.64 Canadian
  • Providing $161.29 per year in dividends
  • My yield on cost is 3.4%, while the current yield is 4.1%
  • I plan to hold on to these shares indefinitely, adding to the investment when the valuation is attractive
  • The dividends will be collected and re-invested in GE or another stock of my choosing
  • The dividends are not tax friendly, however you can't get GE's exposure in a Canadian dividend paying stock

Yes there have been, and will be short term issues with GE's earnings related to their large financial exposure. These short term problems are blessings in disguise for a long term dividend growth investor because they are providing an opportunity to pick up a company that has raised its dividend every year for the past 31 years while it's yielding over 4%. You could say the same thing about some U.S. and Canadian banks right now, however I believe GE's current and future earnings and dividend growth prospects look good relative to that of these banks. GE operates in many areas like domestic and emerging market infrastructure as well as alternative energy that should prove to be high growth businesses going forward. It's nice to add non-financial exposure to a dividend growth portfolio, when you are confident of future dividend growth from the starting point of a 4.1% yield.


Billy said...

Great blog...

You can't say GE isn't exposure to Financials - a high percentage of the company is in exactly that business.

Dividends4Life said...

I will probably be flogged for saying it, but I hope the market continues to drift down. Next week I will fund my brokerage account for June purchases. There's nothing like a bargain!

Best Wishes,

MG (moneygardener) said...

Hi Billy, Thanks. I did not say that GE isn't exposed to financial.

D4L, I agree.

Anonymous said...

I iniatated a position in GE buying 30 shares this week. I also think it's got a great future long-term.

good luck,


LDubz said...

As US dividends are taxed as if they're interest (in non-reg accounts), if one is in the top earning bracket, you're looking to lose half of your dividend earnings just to tax and some to withholding tax (which one can claim as a credit at the end of the year) but essentially your yield drops from 4% to 2%. . . how do you justify investing in dividend paying stocks in non-reg accounts?

DividendGrowthInvestor said...


Some of us are not subject to the canadian tax system :-)

I also think that GE should be a part of every dividend investor's portfolio with its above average yield, low P/E and the number of businesses under its belt.

MG (moneygardener) said...

ldubz, I doubt my yield would drop from 4% to 2% after tax. I'm not in the top tax bracket. I have to live with the tax system as it is. I want this exposure in a non-registered portfolio so it is what it is. My portfolio will likely always be at least 50% Canadian dividends so this affect will be muted somewhat anyway.

LDubz said...

while i agree now is a great time to get into GE, i feel that losing out on the taxation benefits from USD dividends tough to swallow. perhaps one way around this is to initiate a position now, and contribute it to your RRSP and eat the FX rates on the dividends (which will be less than the tax rate in non-reg accounts), and pray that canadian brokers (besides quest trade) allow USD RRSPs in the near future.