General Electric Stock Buyback Returning Value to Shareholders

By Markets Fool.com

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In 2015,General Electric Company (NYSE: GE) announced plans to divest its financial services business to focus on its core industrial businesses. Net proceeds from divestments would return $90 billion in value to shareholders by 2018, including $50 billion of stock buybacks and another $40 billion in dividends -- the largest single program geared toward shareholder value in the company's history.

Period

Stock Buyback Amount

2015

$20.4 billion

First Half 2016

$11 billion

July 2016

$4 billion

Remainder of 2016

$3 billion

Remaining Commitments by 2018

$11.6 billion

Total of Stock Buybacks, 2015-2018

$50 billion

Data sources: SEC filings, General Electric.

GE stock buyback schedule

Management estimates that the program will reduce outstanding share count to 8.5 billion shares, a reduction of 20%, by the end of 2018. The ambitious program was only announced in late October 2015, but General Electric Company is on track to fulfill its promise.

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Assets sales from GE Capital allowed the company to buyback $20.4 billion in stock in 2015, with another $18 billion in share repurchases slated for 2016. As of the third week of July 2016, General Electric had completed $15 billion in stock buybacks for the year -- putting the company just $3 billion shy of its full-year total with nearly five months remaining on the calendar. To completely live up to its promise to shareholders, the company needs to repurchase just $11.6 billion in stock in 2017.

What about dividend payments?

While General Electric has prioritized its stock buyback program thus far, the company has managed to return an impressive amount of funds from GE Capital asset sales to investors through dividends as well. That shouldn't be too surprising for a company that has cut its dividend only twice in its history: during the Great Depression and during the Great Recession in 2009.

Period

Dividend Amount

2015

$4.3 billion

2016

$8 billion

2017-2018

$27.7 billion

Total dividend payments, 2015-2018

$40 billion

Data source: SEC filings, General Electric.

In 2015 a total of $4.3 billion was returned to shareholders through dividends, which pushed full-year shareholder returns to $25 billion when combined with share repurchases. Management is on pace to return an additional $8 billion in dividends to investors in 2016, or $26 billion for the full-year including stock buybacks. To meet the total multi-year goal for dividends, General Electric will need to expedite its dividend payments or issue a special dividend -- or both -- sometime before 2018.

What does it mean for investors?

While enjoying $90 billion in extra value is difficult to argue with, investors should remember that these are the short-term gains on a long-term vision. General Electric divested GE Capital to improve the flexibility on its balance sheet and refocus on its industrial identity. The company is aiming to generate 90% of its earnings from industrial businesses by 2018, compared to just 58% in 2014, the last full year prior to the announcement of the plan. It's too early to tell whether or not the company will hit this ambitious goal, but investments in digital technologies, the industrial internet, and 3-D manufacturing bode well for its ability to grow both the top and bottom line for shareholders in the long run.

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Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitter.

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