GE Finally Cuts the Dividend

In a move that has been speculated about for quite some time, General Electric (GE) finally cut their dividend by 21 cents. CNBC brought the breaking news:

“… GE will ultimately of course reduce the payment of the dividend to 40 cents a year. Again, GE to cut its dividends from 31 cents a quarter to 10 cents a quarter, saving the company as much as $9 billion annually. Some, of course, expected that GE might cut dividends completely. The company previously, as you know very well, Sue, committed on a number of occasions to maintaining that …Again, GE recently transferred or moved a good deal of money to GE capital, strengthening its equity capital position. Nonetheless, it will be another thing that increases the ability of the company to maintain cash and sustain potential losses that may or may not be taking place at GE capital as it has to mark down things.”

As much as CEO Jeffery Immelt did not want to cut the dividend, in the end his hands were tied. As we wrote in Stock Soars on Hint of Dividend Cut, Huh?, it would have been far more detrimental to shareholders if the company lost its triple-A credit rating in order to maintain its hefty dividend. However, in contrast to that speculation of a dividend cut when the stock spiked up, this time the actual dividend cut has been met with dismay by the market as GE is selling off nearly 5%, and has set a new 52-week low at $8.40. These are certainly very tough times at GE and Immelt continues to raise doubts about whether he is really able to right the ship.

Original post

Comments

[jculley:]

Let the bottom fall out of this dog. They didn't fire Immelt and the market is reacting as though GE is going to have to cut it again.

It is like Immelt and Liveris got together to see how they could destroy two of Americas longest standing companys in the quickest way possible. Immelt has done TRIPLE the damage then the CEO's of Citi.

Feb 27 02:36 PM

[CautiousInv...:]

Your notes pretty much cover the story.

U.S. companies are reducing dividends at the fastest rate in half a century, hoarding cash and squeezing investors who depend on the dividends to preserve cash.

With the cut, Immelt surrendered in his effort to convince doubters GE could earn enough profit to support both the dividend and highest-available debt rating in the deepest global slowdown since the Great Depression.

I believe earlier in the year immelt is on record as saying he was prepared to run GE without a AAA rating inorder to maintain dividend payouts and reward investors.

The decision reinforces management's commitment to the highest rating, underscoring the importance of access to credit and the still fragile credit markets.

Feb 27 02:49 PM

[Chris B:]

This was the right decision for GE just as it is the right decision for almost any bank going through this crisis. Yet the yield chasers sold.

My question is, why do investors keep chasing single-digit ANNUAL dividend yields into such risky territory at a time when prices are moving 5-10% DAILY? If you wanted yield, you should have bought a bond or bank CD, not common shares of a massively leveraged lender!

I'm not interested in this bank stock because management has demonstrated themselves to be fools and are still draining the company of much needed cash by paying any dividend. When I read this article, I had a flashback from another article about GM a while back.

Feb 27 02:58 PM

[James Quinn:]

To all the idiots who trashed my article of Nov 17,2008. I told you so.

seekingalpha.com/artic...

Feb 27 03:01 PM

[Dividend Gr...:]

Chris,

If you bought GE at $31 in 2008 your yield on cost is 4%, even if current yield is 10%. Now that the dividend is 10 cents, your yield on cost will be 1.30%..

I do agree however that chasing high yields is seldom a good strategy. I disagree that if you seek income you should limit yourself to CD's. Dividend Growth stocks have proved in the past that they could be a reliable way to generate an increasing stream of dividend income over time..


On Feb 27 02:58 PM Chris B wrote:

> This was the right decision for GE just as it is the right decision
> for almost any bank going through this crisis. Yet the yield chasers
> sold.
>
> My question is, why do investors keep chasing single-digit ANNUAL
> dividend yields into such risky territory at a time when prices are
> moving 5-10% DAILY? If you wanted yield, you should have bought a
> bond or bank CD, not common shares of a massively leveraged lender!
>
>
> I'm not interested in this bank stock because management has demonstrated
> themselves to be fools and are still draining the company of much
> needed cash by paying any dividend. When I read this article, I had
> a flashback from another article about GM a while back.

Feb 27 03:12 PM

[Heaven, Hel...:]

It will be interesting to see if GE can maintain its AAA rating. With the recent downgrading of Toyota, there are now only five triple AAA rated corporates left (ADP, BRK, GE, JNJ, & XOM).

Feb 27 03:17 PM

[PROXIMO:]

Your article was spot on. IMO GE seems to evoke more emotion than other American companies when readers post comments. When emotions cloud rational thought with regard to investment decisions, it can be very expensive.


On Feb 27 03:01 PM James Quinn wrote:

> To all the idiots who trashed my article of Nov 17,2008. I told you
> so.
>
> seekingalpha.com/artic...
>
>
>

Feb 27 03:42 PM

[ozcutty:]

why did GE pay such a high dividend anyway? they were just tryng to set some kind of stupid record for raising their dividend. Unfortunately the underlying business couldn't support it. With management reluctant to face realities it makes you wonder whether there is more bad news coming

Feb 27 04:49 PM

[HiSpeed:]

Anyone who didn't see this coming shouldn't be in the stock market. GE cutting div was obvious as the next sunset.

Feb 27 04:53 PM

[HiSpeed:]

Next we'll see GE ratings cut at S&P, Moody, Fitch (any of those three stooges - as if they have ANY street cred....).

Then, GE gets slammed as the next AIG.

Feb 27 04:56 PM

[TA:]

You were right and there are a ton of people on here who think name calling is required when you disagree with something(see any negative AAPL article for examples)

That said doing the 'I told you so...' is so lame


On Feb 27 03:01 PM James Quinn wrote:

> To all the idiots who trashed my article of Nov 17,2008. I told you
> so.
>
> seekingalpha.com/artic...
>
>
>

Feb 27 05:10 PM

[Chris B:]

On Feb 27 04:49 PM ozcutty wrote:

> why did GE pay such a high dividend anyway? they were just tryng
> to set some kind of stupid record for raising their dividend.

----------------------...

Take a look at the insider trading. Insiders have exercised a lot of options and received millions in stock compensation in the last 6 mos. and then sold their shares. They knew maintaining the dividend would prop up the value of the stock and give them time to cash in their options. This influenced them to fight to keep the dividend - in fact to recently PROMISE the dividend, even at the expense of the company's financial strength and, eventually, reputation.

finance.yahoo.com/q/it...

Insiders 1
Yield Chasers 0

Feb 27 05:27 PM

[MJJP:]

The problem with GE cutting the dividend isn't so much with the cut in how it was handled. Immelt had been saying all along that the div would not be cut. His credibility is forever tarnished and confidence is now gone if any was left. This shows we don't know how deep the pit is at the finance sector of the company. For all anyone knows it could take this company down for the count. That would be unfortunate because the rest of the company is poised to profit big time for the changes that need to be made. In my opinion someone should consider spinning GE Capitol off as a separate company to run it if possible .As I said before there is no time line that needs to be adherred to on collection of these loans. If it takes more time to collect on these loans so be it. The shippers have been doing this for a while now and look at GGP. The banks have been extending the debts because GGP is still paying.

Feb 28 07:29 AM

[bamanomical:]

Is it just me or does Mr. Imelt have trouble completing any sentence lately? The man has lost all credibility and its time for him to be on his way. I want a confident leader, and he certainly shows non of that.

Feb 28 08:17 AM

[notsosmart:]

cmon folks.if you believe any ceo or board member its your fault.they are all liars & there is no accountability.there is no ethics or trust left.we papered the greed world with phony AAA worthless paper.in bygone days,immelt would have been gone 2 yrs ago.

Feb 28 12:49 PM

[Teutonic Kn...:]

The dividend cut is fait accompli (in italics) done after the fact isn't it? So Mr. Immelt finally faced up to reality just in the nick of time.

For a company that had dabbled itself in financial markets, borrowing heftily from Buffet at 8% as preferred to pay dividends at over 10% is just purely unrealistic and unsustainable. How long could a stock afford to continuing paying out a dividend return of 10% in this climate of MMF of less than 1%?

Heading down to ~ $6 before it is finally over as I predicted earlier in SA.

Feb 28 12:50 PM

[Rob Delsman:]

Look Gang.. Nobody should be surprised by the dividend cut. Immelt and the GE BOD have been admiring themselves in the mirror for far too long and nobody seemes able to break the cult.

Time and again during stockholder meetings and other "Immelt pontifications" it’s always the same, I know better than anyone else and if you disagree with me, I will simply ignore you.

It is incomprehensible to me as a former GE employee 10+ years how Immelt ( or the GE BOG for that matter) could have qualified to stay in his job let alone have the opportunity to turn down a fat bonus at the end of 2008. During my employ with GE I was expected to grow my business by double digits every year or be on the fast track out of town.

Break the CULTure at GE, Solve the problem.

Feb 28 01:56 PM

[Teutonic Kn...:]

Some say that the GE culture is even more insular than that of the federal government's. Best of luck!


On Feb 28 01:56 PM Rob Delsman wrote:

> Look Gang.. Nobody should be surprised by the dividend cut. Immelt
> and the GE BOD have been admiring themselves in the mirror for far
> too long and nobody seemes able to break the cult.
>
> Time and again during stockholder meetings and other "Immelt pontifications"
> it’s always the same, I know better than anyone else and if you disagree
> with me, I will simply ignore you.
>
> It is incomprehensible to me as a former GE employee 10+ years how
> Immelt ( or the GE BOG for that matter) could have qualified to stay
> in his job let alone have the opportunity to turn down a fat bonus
> at the end of 2008. During my employ with GE I was expected to grow
> my business by double digits every year or be on the fast track out
> of town.
>
> Break the CULTure at GE, Solve the problem.

Feb 28 02:17 PM

[the don:]

Quotes from mr. Immelt... Jeff and all the directors need to be replaced now.
"The numbers are in the bag."
"I belive 25.00 is a great entry point."
"The dividend is guaranteed for all of 2009."

Feb 28 04:03 PM

[mgcolin:]

Russell Wilkerson where are you?

Feb 28 04:51 PM