GE HEALTHCARE: THE IMAGE OF DIVIDEND GROWTH?

By Tejas Shankar, Equity Analyst 

According to the U.S. Census Bureau from 2010 to 2020, the U.S. population aged 65 and older grew by over 38%, the fastest growth rate of this population group in the span of a decade in centuries. With the U.S. population aging by the year, demand for medical imaging, services, and diagnostics is only growing.GE HealthCare Technologies Inc. (GEHC), spun off from General Electric in 2023, is a top-3 global healthcare solutions provider of advanced medical technology, pharmaceutical diagnostics, and related software, which addresses the demand from the elderly. GEHC, having been divided from General Electric, a former Fortune 500 conglomerate, got a strong start in life. After all, young GEHC came from a wealthy and educated family. 

The healthcare equipment and supplies industry is extremely difficult to enter since many describe selling to hospitals as a nightmare, due to their notoriously long sales cycles, which typically range from 6 months to 2 years. Contracts with medical institutions, depending on whether the product is software or medical equipment, can span from a few months up to over 5 years, which only adds to the mountain of barriers for this industry. These long sales cycles and contracts are due to the high switching & training costs, as some medical equipment can cost north of 7 figures. Entire hospital networks are built on certain infrastructure that operates differently from others. To ensure that there is continuity and patients can be certain they are receiving consistent care as much as possible, hospitals don’t switch often. All of these contributing factors lead to the healthcare sector as a whole having high barriers to entry. Competitive moats let a company keep pricing power, market share, and high returns on capital even with rising competition. In Warren Buffett’s view, having a competitive moat allows a company to avoid significant competition that can replicate their business’s position or undercut them, something that GEHC has taken advantage of.

As briefly mentioned earlier, GE Health has increased demand for its products and services in part due to the fact that the population in the U.S. and across the globe is aging, leading to many medical institutions requiring its products. As of GEHC’s 2025 Q4 Earnings call’s news press release, the company has a record backlog of $21.8 billion. This record backlog is built on the demand of one of GE Health’s leading segments: Imaging, which encompasses north of 60% of its revenue in 2025. Imaging for GE Health includes molecular imaging, computed tomography(CT), magnetic resonance(MRI), image-guided therapy, and X-Ray systems. Though GE Health doesn’t stand out as a pioneer with medical-grade AI technology,  they provide complementary digital solutions that utilize Artificial Intelligence with its integration in both its machines and hospital software stack. For example within their SIGNA portfolio, AI is embedded to speed up image reconstructions, improve slice consistency, and automate parts of the scanning and positioning.

Scanning the Financials 

After dissecting GE Health’s business, demographics that allow for its success, and the market structure that establishes it as one of the few leaders in global healthcare solutions, what do the books say? When looking at GEHC’s 10-K, we are going to use Medtronic as a benchmark since it has been a prominent player in the Health Care Equipment and Supplies sector for many decades now. As of GEHC’s 2025 10-K, Revenue for FY25A came in at $20.625 Billion, which is a 3-year Compounded Annual Growth Rate(CAGR) of 4% based on previous years of operation. This does leave more to be desired as an investor, as Medtronic came in at a 5% revenue growth, approximately in line with the industry, despite being a legacy medical technologies company. Though GEHC’s gross margins come in at 40%, at the lower band of the industry’s range, investors shouldn’t worry due to their inherent business model. The hardware that is sold to its customers may have lower margins as they vary in price, but the long term contracts signed lead to long term recurring revenue, which makes up 60% of the company’s revenue. In addition, the software, maintenance, consumables, and more lead to higher margins, which balances with the lower margin hardware into what may be a low composite gross margin. GE Health’s business relies very little on its Capital Expenditure(CAPEX) relative to some other companies, with a capex to revenue ratio of 2%. Capital Expenditure isn’t a prevalent aspect of GE Health’s operations, as well as many other healthcare equipment providers, unlike the AI Industry, which is seeing an exorbitant amount of CAPEX. The reason why this is important to discuss CAPEX is due to the fact that their inflated spending metrics lead to companies leveraging a large amount of debt to build out these projects, which have led to unsustainable and overextended valuations. On the other hand, in 2025, GE Healthcare generated slightly over $1.5B in Free Cash Flow(FCF) against 10B of debt, which suggests that while the company isn’t unlevered, its current cash generation comfortably services its debt obligations gradually.

Something that also entices investors regarding GEHC is its dividends. Right now, they pay a 0.2% dividend yield and a 3.1% payout which gives them a ton of growth potential. This is an extremely low payout ratio, which essentially means that GEHC pays out 3% of its earnings to shareholders. In theory, if over time management decided to lift the payout ratio to 30% over the next 5 years, assuming earnings remain constant, the dividend could 10x. In reality, earnings growth, which is expected, will lead to added dividend growth potential, which is extremely attractive for potential investors. When it pertains to the most fundamental value metrics, the Price to Earnings or PE Ratio, GE Healthcare is sitting around 18.5, while the medical sector sits at around 30. So in context, having an 18.5 PE ratio indicates that they are trading at an 18.5 multiple of their earnings compared to the industry average of 30, suggesting its more attractive value. In contrast to the positives that the books present, it is important to note that this spin-off company has only been on the market as an independent corporation for 3 years, and there is no long track record of operations.

Diagnosis? Profitable 

Despite the short-term success the company has seen, there is a bigger picture that must be highlighted. They have excellent growth potential, with first off being the kid starting off life in the rich neighborhood, a high barriers of entry industry, having record breaking $21.8 Billion backlog, and more. Being spun off, the company has the ability to focus on R&D and operational efficiency without competing with its own internal business lines as part of the previous GE conglomerate, leaving a massive load of the company’s management. Despite the focus on imaging, unlike its competitors, GE Health is also a major player in the pharmaceutical diagnostics market, which gives it duality to their operations. 

As an investment, GE Health is primed to be quite a stable healthcare company that has segments with real growth potential. The dividends are also extremely attractive to investors as they’re only going to rise, with strong financials and low current payout ratios. The demand caused by the growing aging demographic and record-breaking backlogs only brings more confidence into the GE Health businesses. So though risks are present with the company, being 3 years old, and rising competition in international countries, the investors who want stability with multiple segments of their business with strong growth potential, with others on top of healthcare exposure in the market, can look no further than GE Healthcare. GE Healthcare isn’t an explosive AI story, but for investors who want a sustainable healthcare business in an AI-enhanced, high-barrier-to-entry market, with modest valuations, and room to grow its dividend, it may be a compelling candidate.