GE Underscoring Its Core Competency – Infrastructure

ge monogramIn one of the recent brand valuing exercise, GE’s brand value in dollar terms came out at number four. GE’s current number four position remains unchanged since 2001. One would tend to assume and to a certain extent question the fact that how can it remain same with what happened with GE in 2008 and early 2009. There were many factors such as CEO missing the bus on earnings, coming out with everything OK statement, cutting dividends, capital infusion from Buffett, etc. So we as individuals would tend to think that GE brand value should have gone down.

I think the key aspect that we miss here is the GE’s positioning in global economics. When we look at GE we look at window of US economies and US stock markets. We come to a conclusion that GE is toast and does not deserve its top ranking. We tend to forget that GE earns up to 60% of its revenue from markets outside North America. GE’s products, reach, high end markets, and presence in emerging markets, is what makes its brand valuable.

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Does Share Buyback Return Value to Shareholders?

There is a school of thought that companies engage in share buybacks to support the down side of its share price. This is good because it is returning back some of the cash back to the shareholder. Indirectly, it is supposed to help shareholder by returning value. So let us take a look at some examples.
As per Standard and Poor’s research published in December 2007, S&P500 index companies spent (three years preceding the published date):

  • USD 1.318 trillion on share buybacks;
  • USD 1.276 trillion on capital expenditures;
  • USD 0.376 trillion on research and development; and
  • USD 0.605 trillion on common dividends.

To put these numbers in perspective, around that time period, the entire market capitalization of the S&P 500 was approximately $14 trillion. I was under the impression that corporate America spends more in research and development. However, this observation tells me otherwise.

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Dividend Suspensions and Reductions – A Natural Characteristics of Economic Cycle.

In one of my earlier posts, I had discussed how smaller ones gets ignored, or gets buried under the media onslaughts, or perhaps they do not have the oomph! Dividend cuts by financial institutions (BAC, C, WFC, etc.) and corporations that supposedly represent American economy (GE, GM, PFE, etc) have been in headlines. In fact business media have been so focused on them that speculations with various scenarios start well before the announcement of dividend suspensions or reductions. In addition, business media has also given a wide coverage to Standard and Poor’s projection that cumulative dividends from corporations in S&P500 index will reduce by 13.3% for year 2009. In this environment it is likely for individual investors to get distracted and flustered by the dividend cuts. However, before we do that, let us look at current dividend situation in historical perspective. continue reading rest of the article….

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