Will GE's Buyback Recharge Its Share Price?

GE reportedly (GE) will buy back slightly more than $12 billion shares, although the company has not made a formal announcement or filed paperwork with the SEC. The action, as described in the Financial Times, would get GE's share-float back to 2008 levels. The conglomerate has used some of its stock for M&A activity since then. But GE is faced with the dismaying prospect that its shareholders won't care about the buyback at all.

Share buybacks and dividend increases have become more frequent recently. McDonald's (MCD) has been buying back shares for years. Target's share buyback helped its EPS last quarter.

Balance sheets of many large companies like Cisco (CSCO) and Intel (INTC) have swelled due to strong cash flow. Intel announced on May 11 that it would increase its dividend by 16%. Cisco announced its first-ever dividend on March 18. GE increased its dividend in April, the third time it had done so in a year. Other companies, of which Apple (AAPL) is the most notable, have tens of billions of dollars on balance sheets but refuse to distribute that cash, either through buybacks or dividend increases.

In the case of GE, the buyback may mean little to its beleaguered investors. GE's market cap is $210 billion, so the reduction of shares on the market will be for only a small portion of its total market value. Further, the impact of the buyback will be muted because it will be spread over several years.

But these aren't the reasons why the buyback may generate little enthusiasm. It's often pointed out by market and industry watchers that GE's stock price hasn't risen since CEO Jeff Immelt took over from legendary businessman Jack Welch in 2001. Indeed, GE's shares are down 40% in the past five years.

No share-buyback can conceal poor performance. GE's 10-K for 2010 shows a net income of $11.6 billion. That's up very slightly from $11 billion in 2009, but down sharply from each year in the 2006 through 2008 period. A $12-billion-share buyback is not enough to offset that.

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roy

how can we ge shareholders get jack welch back?

July 11 2011 at 1:26 PM Report abuse rate up rate down Reply
Frog and Toad

GE doesn't pay taxes on the billions they make???? They sure don't spend any of the money on dividends for investors. When the market took a dive they cut dividends and paid next to nothing. That's been six years ago and dividends still haven't recovered to the previous level. The only thing GE makes that doesn't suck is their vacuum cleaners!

June 13 2011 at 12:05 PM Report abuse rate up rate down Reply
CScully61

Last I knew, Immelt was named the Job Czar, so we're even paying him a salary on top of GE not paying taxes. People need to wake up, this cannot happen again in 2012.

May 20 2011 at 2:24 PM Report abuse +1 rate up rate down Reply
zoebark

How about that GE, the owners of MSNBC (An unofficial Democratic Party Campaign Head Quarters), is one of the richest corporations in the world (Making billions in profits), and some how GE did not pay any US taxes ($0) last year. Yet the Obama anti-business campaign rhetoric has not been leveled against GE the most egregious corporation thief, gee I wonder why? Got any ideas?

May 20 2011 at 1:15 PM Report abuse +2 rate up rate down Reply
kdt34wqx

This buyback means nothing to investors. GE has been touting buyback for years, with no change in the number of outstanding shares. The instant Immelt gets thrown out of GE, he'll go down in history as the worst manager in the history of the company. Immelt is a functional moron with no clue how to run the company.

May 20 2011 at 8:11 AM Report abuse +3 rate up rate down Reply
1 reply to kdt34wqx's comment
Frog and Toad

Another excuse to cut dividends for stock holders.

June 13 2011 at 12:06 PM Report abuse rate up rate down Reply
treasuredtrophie

What else can Obama do for them to collect more caampaign funds.

May 20 2011 at 7:48 AM Report abuse +2 rate up rate down Reply
ilm9p

Where's the comment from that Doctor moron who ran for President?

May 20 2011 at 7:23 AM Report abuse -1 rate up rate down Reply
Dennis

I think by not paying taxes on billions in profits should have been enough to increase their share. I guess there were benefits for some in contributing to Obama's campaign in 2008.

May 20 2011 at 6:45 AM Report abuse +2 rate up rate down Reply
jhooperaa

GE is a dinosaur. The day of the conglomerates is over. They are too large and diverse to have significant earnings growth which is what drives the stock price. GE makes half its money with financial engineering. It is not illegal but it is not a recipe for the long term health of a company. The last conglomerate that crashed and burned was TYCO. Put aside the executives who had legal issues the business model and financial engineering that kept TYCO going sooner or later crashes and burns. TYCo is very successful today for one reason. It broke up into three separate companies. GE should do the same. Add to that the fact the Immelt is in bed with Obama which should be a turn off for anyone who cares about the future of America. I cannot remember when a corporate executive had gotten so far in bed with a President in my lifetime. He did it to gain favors for GE. There is an old saying. If you sleep with dogs you wake up with fleas. I would NEVER own one share of GE due to thier ties with Obama and the Democrats,.

May 20 2011 at 4:46 AM Report abuse -1 rate up rate down Reply
sgentilejr

It is far less costly and far more productive to merely have a REVERSE split to lower the number of outstanding shares.
They could cut the number of shares in half all at once by using a reverse split.

May 20 2011 at 4:01 AM Report abuse rate up rate down Reply