October 20, 2017 / 10:16 PM / 2 years ago

For GE and its shareholders, a lost decade and a half

NEW YORK (Reuters) - It has been a rough 16 years for General Electric Co (GE.N) and its shareholders.

FILE PHOTO: A man walks past the Global Operations Center of General Electric Co. in San Pedro Garza Garcia, neighbouring Monterrey, Mexico, May 12, 2017. REUTERS/Daniel Becerril/File Photo

When recently retired Chief Executive Jeff Immelt took over at the helm of GE in September 2001, the conglomerate was the most valuable U.S. publicly traded company, giving it outsized influence on the stock market.

In the years since, its annual net earnings have shrunk 35 percent and the stock has been effectively dead money: down more than 40 percent in price and posting a negative total return even after reinvesting its juicy dividends.

Along the way, GE's sway on markets has withered. The stock now has about one quarter of the weight on both the blue-chip Dow Jones Industrial Average .DJI and the large-cap benchmark S&P 500 .SPX that it had back on Immelt's first day.

On Friday, GE reported its last quarterly profit of the Immelt era, well below Wall Street’s expectations. Immelt’s successor John Flannery derided the results as “horrible” and pledged “sweeping change.”

The following statistics highlight GE’s stock troubles and its fading market influence.

* GE’s weight on the price-weighted Dow was 2.86 percent when Immelt took over, according to S&P Dow Jones Indices, when the stock was at $40, around the middle of the pack among the 30 members of the index. With the stock closing below $24 on Thursday, the lowest in the index by a margin of more than $10, it had a 0.7 percent weight. The shares closed at $23.83 on Friday.

* At their current price, GE shares would have less than one-tenth of the impact on the Dow as Boeing Co (BA.N), the highest-priced stock in the Dow at more than $260 a share.

* GE is the lone remaining original component of the Dow, one of the 12 companies tracked by Charles Dow starting in 1896. But it has not been in the index continuously. GE was replaced and returned twice at the turn of the 20th century, but has been consistently a component since November 1907, nearly 110 years.

* Since 1976, a component change in the Dow has occurred on average about every two-and-three-quarters years. The last shake-up, when Apple Inc (AAPL.O) replaced AT&T Inc (T.N), occurred in March 2015, just over two-and-a-half years ago. Apple’s market cap was about 1/60th of GE’s when Immelt took over, but is now four times larger and owns the mantle of the world’s most valuable publicly traded company.

* Could GE get the boot in the next change? Despite GE’s troubles, Dave Nadig, CEO of ETF.com in Chicago, was skeptical that GE’s recent struggles would push the stock out of the Dow. “I don’t think that they are going to get kicked out of the index because the performance is bad,” Nadig said. “You’d have to believe that the core of their business had really changed.”

* It is not just in the Dow that GE’s influence has shriveled. Once the heaviest component of the market-cap weighted S&P 500, GE now accounts for less than 1 percent of the S&P 500’s market value. It accounted for about 4 percent when Immelt became CEO.

* New CEO John Flannery took the reins in August from Immelt. Since the start of Immelt's tenure in 2001 to Friday, GE's shares have declined 41 percent, against gains of more than 130 percent for both the S&P 500 .SPX and the Dow.

* GE pays a rich dividend, but even reinvesting those in the stock failed to pull investors out of the red in the Immelt era. Through Friday, the stock had delivered a total return of negative 0.4 percent since September 2001 against comparable gains of 222 percent for the S&P and 254 percent for the Dow.

* Investors are speculating that the dividend could be cut. It would not be the first time. In February 2009 GE announced plans to reduce its dividend as its then-massive finance arm grappled with the financial crisis. It cut the annual payout 68 percent to 40 cents a share, but it has since recovered to 96 cents.

* GE’s dividend yield of about 4 percent is currently the second-biggest in the Dow, trailing Verizon Communications Inc’s (VZ.N) 4.8 percent yield.

(For a graphic on GE's market value vs Apple's, click bit.ly/2gWA07W)

(For a graphic on GE's weight in the S&P 500, click bit.ly/2hTr7Mh)

Reporting by Lewis Krauskopf and Dan Burns; Editing by Bill Rigby

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