For those of you who have been invested in GE for years, mostly because of its generous dividend, the times have changed. No longer will GE be providing a 4 to 5% return on your stock holdings. No, it now will be closer to a 2% dividend rate. Which is among the several reasons the stock price has tanked recently.

One of the stronger indicators for how well GE’s management is doing is to look at the statistic called ROIC. The Return On Invested Capital. This data point is derived by dividing the company’s operating income (adjusted for its tax rate) by the total debt plus shareholder equity minus cash holdings of the firm.

Obviously, companies hoarding lots of cash look like they are well managed, since that increases the ROIC. (ROIC is said to determine how much new cash is generated from capital investments; in other words, how well the physical operation is working to create profits.)

GE’s current ROIC for the year is about 14%. But, when you look at the quarter by quarter results for the past year, you see it’s been uneven as heck. Q3 16 yielded 11% and for Q4 16 it rose to almost 19%. It dropped dramatically during Q1 17 to 9%, rising to 11% and 16% over the subsequent 2 quarters.

By comparison, Rockwell has an ROIC of 52%, 3M has an ROIC of  almost 26%, with Cummins and Emerson are almost at 21%.   (These firms are considered to be in the same economic sector as GE.) Yet, Microsoft has an ROIC well above 75%- while Apple’s is just below 21%, with Intel just below that at 20%.

The big problem with using this statistic is that larger firms need to be far more granular in their analyses. They need to determine how well each division is performing- if not each factory. If the new project or a given factory is not performing, it may be time to dump the project or change the factory’s management to effect better results.

Nevertheless, investors love this statistic. After all, there is some data indicating that ROIC is related to better shareholder returns. For example, if one were to examine the performance of those members of the S&P (Standard and Poor’s) 500 with the higher ROIC to those with lower ROIC, one would see a 10.5% annual return (over the last decade or so) for the firms with higher ROIC- while the lower ranked firms yielded a 9.6% return.

And, many stock analysts compare a company’s ROIC to its cost of capital. The higher the difference, the higher the ranking afforded the firm.  (That’s one of the big factors behind the “buy” recommendation.)

Well- the stock market is (still) booming. So, go buy some stock. (You can buy fractional shares if you don’t have much money.)  Even if the stock were only paying a 2% dividend (as long as it doesn’t drop in value), that’s a better return than the banks are giving you!

 

Ding, ding, ding, ding!!!!   If you are not yet eligible for Medicare (this means you are not 65), then today’s the day.    You need to pick the best PPACA/Obamacare option to cover yourself and your family.   (As of now, there still is a 2.5% penalty if you don’t get yours!)   

But, if you are a senior (over 65), you’ve lost your opportunity to choose the best plan under Open Season for Medicare already.  That deadline came and went last week.