Divided Icon: General Electric Breaks Up into Three Investable Businesses

If the “Magnificent Seven” or a similar list of elite U.S. businesses existed 30 or 40 years ago, General Electric would surely have been on that list. From light bulbs and household appliances to jet engines, GE was a pioneer and an emblem of American ingenuity for generations.

However, that was then, and this is now. GE stock’s performance since the turn of the century has been far from “magnificent,” although there are signs of a comeback. Moreover, while apparently drastic, CEO Larry Culp’s measures to turn the company around may turn out to be surprisingly effective.

General Electric: The Big Breakup

In 2008, the financial crisis sent many U.S. businesses into a tailspin. It was particularly troubling to witness General Electric’s meltdown. Its financial arm, GE Capital, nearly went bankrupt.

Part of the problem was that the conglomerate had grown too big and too diverse for its own good. About a decade after the financial crisis, GE got booted from the Dow Jones Industrial Average (DJIA) and slashed its quarterly dividend to just a few pennies per share.

Today, General Electric still pays less than a dime per share in quarterly dividends. This might disappoint passive-income seekers, but at least the ultra-low yield allows the company to conserve capital.

On the other hand, what GE stock lacked in terms of dividend yield, it made up for in share-price appreciation. While the stock is still far below its dotcom-era peak, it has more than tripled from its 2022 low of around $50.

General Electric is now undergoing a game-changing breakup. However, it’s not a huge surprise at this point, as Culp announced the split in 2021.

Nonetheless, even though GE’s breakup has been expected for several years, it feels like the end of an era in the American industrial sector. At the same time, it’s a new beginning for the company — or more accurately, the three smaller businesses that have emerged from this transitional phase.

“With the successful launch of three independent, public companies now complete – today marks a historic final step in the multi-year transformation of GE,” Culp optimistically declared.

Three companies and three stocks to choose from

Here’s the rundown on the three companies and their stock tickers. First, General Electric spun off GE HealthCare Technologies (NASDAQ:GEHC) in early 2023. GE HealthCare Technologies is a medical-technology company that manufactures diagnostic-imaging agents, among other products.

GEHC is up by around 17% year to date, which is pretty impressive. However, the company’s dividend payments have been negligible at just a few pennies per share.

Furthermore, today marks the spin-off of General Electric’s power-generation arm, known as GE Vernova (NYSE:GEV). This stock started trading at $115, and Wells Fargo (NYSE:WFC) analyst Matthew Akers set a $136 price target on GEV shares.

What about the “original flavor” General Electric? No worries, as that company is now known as GE Aerospace, although legally it will keep the General Electric name. It will also retain the GE stock ticker, but don’t be surprised if GE Aerospace’s share price drops today.

That’s not due to any negative news about GE Aerospace. Rather, the stock-price drop is happening because GE shareholders will receive one GEV share for every four original GE shares. With that change, the value of GE Vernova stock that the original GE shareholders will receive is being deducted from the value of GE Aerospace stock.

Following the split, GE stockholders are now faced with a choice to make. Will they do nothing and thereby remain investors in GE Vernova? Or will they sell their GEV shares and hope that GE Aerospace stock will fly into space?

I actually like the idea of keeping one’s GE and GEV shares while also adding a few shares of GEHC into the mix. It’s like turning back the clock and investing in the whole, undivided General Electric that investors have known for so many years.

That way, investors can diversify their portfolios but also stay nimble. If any of the divided parts of General Electric encounters irrevocable problems, you can just “spin off” that part of your holdings by selling your shares of GE, GEV or GEHC.

Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.