I have “gone wrong” many times and in many areas of my life, but let’s keep this article focused on my dealings as a shareholder of General Electric (GE). I will spare you the other stuff and save it for my psychiatrist. What’s important in life is not if we make mistakes, but how we deal with them when we do.
I have been an investor in GE since 2008 and still hold the stock today. This investment is not something I am particularly happy about. Let’s review the situation to find out what I did wrong and what we can all learn as dividend stock investors.
As I mentioned, I have been a long term GE stockholder. Here are a few of the significant details:
- Initiated a position in GE common stock in mid-2008
- Added to the position several times during the subsequent years and most recently 2015
- Lost about 20% of my total investment over nearly 10 years after taking into account cash dividends received; an investment in the S&P 500 during this time would have more than doubled in value
WHAT’S GOING ON AT GENERAL ELECTRIC NOW?
There is a whole lot going on at GE. As a current shareholder, the news from the mainstream media coupled with the perpetually falling stock price is downright depressing. John Flannery, GE’s recently appointed CEO, announced a restructuring and turnaround plan yesterday. Here are a few examples of what’s been happening over the past several months:
- Recent management changes in the CEO and CFO positions (hopefully this is a positive event)
- Insinuations from the new CEO that the business is in worse shape than he thought (probably true, but sounds like corporate posturing setting up a successful turnaround for the new guy)
- Suggestions from others who follow the company about “fuzzy” accounting and reporting of financial results (hopefully the new CFO will clean that up)
- The announcement that the dividend will be cut in half (not the type of news a dividend stock investor wants to hear)
- Decreasing earnings per share projections for 2017 and 2018
- Stepped up involvement from Trian Fund, an activist investor
20/20 HINDSIGHT – CONDITIONS I SHOULD NOT HAVE IGNORED
Looking back now, there are several signals that I should not have ignored as a dividend stock investor. In hindsight, I wish I would have exited my GE stock position years ago. Here are a few investing principles I learned:
- As a conglomerate, GE is an investor in different businesses. They have continually chased investment in hot areas during peak times than suffer the down cycle. For example, they invested heavily in financial services before the financial crisis and then divested in recent years. Then they invested heavily in the oil business only to endure a prolonged slump in oil prices and energy markets. Oil no longer appears to be a core area of focus (seems like a buy high, sell low strategy).
- They cut their dividend in 2009. Once a company cuts its dividend, there is no longer a dividend increase streak to protect. It’s a lot easier to cut it again in the future if management has the desire
- Although the dividend started to grow at a respectable rate again in 2010, the growth slowed dramatically in 2014. The slow growth has continued to the present. The only thing worse than a reduced dividend is a stagnant one. If management can’t or won’t grow it, their next likely move may be to cut it, and they have.
WHAT I DID RIGHT!
Let’s bring this article to a close on a positive note. I held GE as part of a diverse mix of investments. At its peak value in 2016, it never exceeded 2.5% of my dividend stock portfolio or 1% of my net worth. Diversification is a critical investing technique. We all make money management and investing mistakes. I won’t let one or a few mistakes blow a big hole in my portfolio. You shouldn’t either. Stay diversified!
WHAT’S THE PATH FORWARD?
Most of the bad news has probably been priced into the stock. Having taken the ride to what looks like a bottom, I have no desire or rush to sell now. I will watch and see what management does and how the company performs for a period of time and either hold or look for a more attractive exit point. Come back soon to Dividends Diversify for a GE dividend stock analysis.
As part of my overall investing process, I also need to develop a better selling discipline for the stocks I currently own. As an investor, I want to avoid this type of situation from happening again.
How about you? Do you own GE and if so, what are you going to do? If you don’t own GE, do you think it is now an attractively valued stock and plan on investing in it? Do you have a story on an investing mistake that you have made and that we all can learn from? Do you have a good stock selling discipline you can share? Please leave a comment and let me know.
General Electric is a member of the Dividends Deluxe Model Portfolio. You can review all of the holding in Dividends Deluxe here: Dividends Deluxe.
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