It’s not easy following in Jack Welch’s footsteps, who practically wrote the book on how to grow a business. Ever since taking the reins in early 2001, Jeff Immelt has consistently paled by comparison, having little to show for his first decade at the helm of General Electric (NYSE: GE). On a compounded basis, sales have grown less than +3% annually during his tenure.

But all that is about to change.

GE is almost done repairing the damage that was wrought by the global economic carnage of 2008, and the company is again gearing up to play offense. You won’t notice it in the near-term, as GE’s revenue is expected to shrink a bit more in 2010 and 2011. But the stage is now being set for a robust return to growth in 2012 and beyond.

Immelt is counting on three factors to propel growth. First, he’s decided to step up R&D funding from 3% to 5%. That means GE will be spending more than $30 billion every year to ensure that each of GE’s operating divisions have industry-best products. Second, he’s breaking out GE’s checkbook. Already in October, GE has announced plans to acquire energy services firm Dresser for $3 billion and another $1.5 billion to buy up a consumer finance unit of Citigroup (NYSE: C). The latter move is a notable turnaround for GE. The company was backpedaling from too much exposure to finance in 2008 and 2009. Now that GE’s financial arm is once again strong, the company can snap up rivals that are still on weak footing.

GE’s acquisition track record is not especially impressive. The company completed 196 deals in the last five years, according to Bloomberg, but not all of those deals panned out — especially the larger ones. GE is now committed to stick with simpler deals — in the $1 billion to $3 billion range — in a bid to simply augment current divisions. In the past, bigger deals were aimed at instantly changing the landscape of an entire industry.

The third leg of growth: the economy. GE is considered to be a late-cycle play, which means that its industrial businesses such as gas turbines, jet engines and locomotives tend to see much greater investments once economic growth is clearly underway. That’s not likely to materialize for at least another 12-18 months, which is why GE isn’t getting a lot of buzz in financial media circles right now.

All about the yield
For many investors, GE’s health can only be measured in the size of its dividend payout. GE was forced to cut its dividend in half in 2009, the first such cut in more than 30 years. The annual payout, which peaked at $1.24 a share in 2008, recently fell to as low as $0.40. In late July, GE boosted the dividend back up to $0.48 while also earmarking cash flow toward an ongoing $11 billion stock buyback.

That generosity comes as GE is again on a course of prodigious cash flow. GE generated more than $20 billion in free cash flow in 2008, but saw that drop to $7 billion last year — though it should be back up above the $10 billion mark by next year. More importantly, the steps above should help free cash flow rise back to at least $15 billion by 2012 or 2013, and that should enable GE to boost the dividend back up to around $1, which would translate into a dividend yield of more than 6% (and closer to 7% if GE completes the planned $11 billion stock buyback before then).

From less bad to good
In the near-term, GE is all about getting healthy. Revenue at the company’s all-important finance arm is likely to be flat, but portfolio losses (and the reserves against them) are shrinking quickly. That fully accounts for expectations that GE’s per share profits will rise more than +15% in 2011 to around $1.30. As a point of reference, GE earned an average of $1.90 a share in 2005 through 2007, and there’s no reason that profits can’t return to those levels once the late-cycle businesses kick in. Shares trade for less than 10 times those normalized earnings, and as noted, also offer the chance of a very juicy dividend yield for those willing to buy now and wait a few years.

Action to Take –> This is not the sexiest name in the stock playbook. Many other companies have even higher growth prospects or lower valuations. But GE once was — and will once again be — a core blue chip holding for many mutual funds and pension funds. As they add GE back into their portfolios, shares should see a steady rise in demand — which is why now is a good time for individual investors to pick up the stock. The worst has passed for this stumbling giant, and Jeff Immelt may finally soon get the vindication that has long eluded him.

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