My Love – Hate Relationship with GE
GE, I love you. AND I hate you.
I love you because you bring back great memories of my childhood.
I hate you because you’re really dragging down the returns of our dividend portfolio.
Why I Love GE
Readers of this blog may remember that I grew up in a small Southern town where a major employer was General Electric (GE). Its huge, 115-acre campus engulfed a large portion of my hometown. Everyone knew someone who worked at GE.
GE created a small town within a small town. There was a church, a post office, a general store, a credit union and a school. Life was good. Until the plant closed.
GE relocated its manufacturing facilities in the 1980s and officially abandoned the site in 1997.
Today, the once booming campus is nothing more than a ghost town. It even resembles one. It’s very spooky seeing a manufacturing plant that was built in the 1950s completely abandoned.
It would make a great haunted warehouse for Halloween. It gets even scarier when you realize that the toxic remnants of the transformers once built there make the grounds unusable. You can’t even dig up any portion of the building or land for fear of unleashing the toxins.
But GE, I still loved you.
And I was excited to add you to the holdings of our dividend portfolio last January.
We’ve been following the Dogs of the Dow strategy where each January we evenly allocate 1/10th of the money in our Dogs portfolio to the top 10 highest-yielding stocks in the DJIA.
Late last year I was sure that GE would not make the cut. They had slashed their dividend in half in November of 2017, so I was convinced that they would not be one of the 10 highest-paying dividend stocks in the Dow.
But GE squeaked in. Barely.
Why I Hate GE
In January 2018, we sold all our shares in Boeing and replaced them with shares in GE. It was hard to sell Boeing which had been the Dow’s best performer of 2017, with the stock returning 86%.
But we were determined to stick to the strategy. GE should replace Boeing in the list since its dividend was higher.
So, we purchased GE at $18.56 per share. I felt comfortable buying in at this level, because I believed the hype: that GE’s new leader, John Flannery, would turn the struggling company around. After all, GE had already lost 50% of its value under the former CEO.
Surely the worst was behind the company.
But I was wrong.
Since our purchase, the stock has lost another 50%. The shares we purchased at $18.56 are now trading around $9.00.
Then in June, GE was dropped from the Dow. When the DJIA was introduced in 1896, General Electric was one of the 12 original companies listed. And up until June, it was the only one of the original companies still listed on the DJIA.
GE made history again. But in a very bad way.
Then in September, Flannery got the boot as CEO. He’d been at the post just over a year. He was replaced by Larry Culp, who is the first outsider to lead the company in its 126-year history.
We should have known the dividend cut was coming when Culp postponed the quarterly earnings report by 5 days to give him more time to review the situation.
When the earnings were finally released, Culp announced the dividend would be slashed by 90% to 1 penny per share. One measly penny.
Oh yea, and Culp also just happened to mention that the SEC was expanding the scope of its ongoing accounting investigation.
The stock tanked. And I mean tanked more than the previous tank. The stock is currently hovering around its lowest level in recent history. To levels not seen since the depths of the financial crisis in 2009.
Adding insult to injury, Boeing, the stock we sold to buy GE, has continued to climb. We sold all our stake in Boeing at $296.37 per share. Currently, Boeing is trading at $357.75. A jump of 21%.
Lessons from a Legend
In the immortal words of legendary country singer Kenny Rogers,
You got to know when to hold’em,
Know when to fold’em,
Know when to walk away
And know when to run.
At this point, we’ve decided to hold’em and stick to our original plan of the Dogs of the Dow.
After all, GE has already lost 50% of its value under the former CEO.
Surely the worst is behind the company.
Oh wait, I think I’m repeating myself.