If you look at the Business Week 500 or Forbes Top companies for many years one name was easily seen GE. The company was founded by Thomas Edison and grew with electricity and branched out to a variety of other fields and for years it was one of the best names to own. The company made profits (money) paid out dividends and grew. One of the past CEOs was a household name and others held great respect in the political and business worlds. GE was also a good company to work for, then something happened and if you hold shares, although the dividends would still are being paid, the value of the stock has dropped, a new CEO is in and you might ask is this a reasonable time to buy?
Looking back from the former cheerleading analysts to now, in an article by John Heinzl, they believe the management culture came to rely on mergers and acquisitions as the main engine of GE’s growth. All was good until there were strategic missteps and ill-time investments completed near market tops (paid high prices for) and the results failed to live up to expected returns so the assets were written down and sold off for less than GE paid.
The big problem which came to haunt the company was GE Capital which at its height was worth $700 billion in assets and generating half of GE’s earnings. Now days GE Capital is a shell of what it once was.
Another example is the oil industry, when the price of oil averaged $100 a barrel GE made a number of buys. When the price of oil fell it bought Baker Hughes and for a variety of reasons, the company will be spun off to streamline GE’s structure and reduce debt.
Another rough example was the purchase of Alstom SA, the deal was done but the market changed for the demand of Alstom biggest product – gas powered turbines. The ones in demand are related to renewable products.
There are many demands and challenges for the company, not the least is their debt was downgraded from A to Triple B. One might ask given all the executive advice possible why was GE unlucky or making poor choices?
Linking to dividend paying stocks, if you are investing in a company you want to be safe and one method to be safe is invest in A rated company or above. Similar to people who are in debt there are not many choices – sell assets, earn more money. It is easier to invest in companies with high A debt ratings, which earn profits and can easily pay shareholders dividends.
There are more questions than answers, till the next time – to raising questions.