GE: A Look Again at the Altman Z Score

I was checking back on a post of mine picked up by FMNN about ALTMAN’S Z-SCORE. In that piece I looked at the components of the DJIA and saw there were 14 out of 30 that according to Altman were signaling financial distress. I am pleased to relate to you that there has been improvement, only 13 of 30 are signaling trouble; HPQ has moved above 2.99, the cut off level, to 3.07. No change in the two companies that may not be with us in the future, GE (.62) and GM (.88).

A cursory examination of the performance of the 30 stocks since Mid March of 2006 shows no correlation with the Altman Z Score, with the exception of GE. You may recall The Dividend Guy in Stock Analysis – My Approach with GE, singled out GE as a company that has a great record of dividend increases. He plugged in the financial data of GE using the Stock Selection Guide originated by the National Assn. of Investment Clubs and came out with this recommendatio relative to the price range:

GE is a SELL in the $51.83 to $63.52 range
MAYBE in the $40.15 to $51.83 range and
BUY in the $28.46 to $40.15 range. The share price of GE was $35.57. He says

At the end of the day, I was comfortable with my analysis and decided to buy GE. Time will tell if this was a good move or not, but at least I will be getting a steadily increasing dividend.

I pointed out to The Dividend Guy, in the comment section, that the website of GE says

As a result of GE’s restatement of its financial information in its amended 2004 Form 10-K dated May 6, 2005, readers should no longer rely on our previously filed financial statements and other financial information for the years and for each of the quarters in the years 2004, 2003, 2002 and 2001. Readers should also no longer rely on our previously announced results for the first quarter of 2005. (emphasis added)

The DJIA is up 7.1% since then and GE is flat, except for that 2.1% dividend yield, which is eaten up entirely by inflation and taxes. When yields are this miniscule, you need capital gains to grow a portfolio. Capital gains become elusive when you speculate on distressed corporations.

FMNN ALTMAN’S Z-SCORE GE The Dividend Guy NAIC Mover Mike

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