In a blog on Friday I urged GE CEO Jeff Immelt to consider the facts facing GE and act to cut the dividend. I likened his position to being a batter facing a two-strike fastball. Mr. Immelt, I think you whiffed. You swung hard but it blew right by you. Let’s look at what you said:
(NYSE:GE) Friday authorized a plan to reduce the Company’s quarterly dividend effective for the second half of 2009.
Look at the cash flow effect of GE’s steps:
04/2009- 31 ct. dividend. The previously declared dividend is paid.
07/2009- 31 ct. dividend. Undeclared but not covered by the "new Plan".
10/2009- 10 ct. dividend. The 1st dividend to be impacted by the plan.
01/2010- 10 ct. dividend. The new regular dividend.
By failing to make the cut effective for the July dividend GE negates much of the benefit for the full year 2009. GE’s claim of $9 billion of annual savings is accurate. But those benefits do not begin to accrue for another seven months. If the '09 benefits are pro-rated over the full year it would have the effect of raising the average retained earnings number by a measly 500 million. 2009 is the problem.
This investor is not going to put up money for GE until the debate on GE’s balance sheet is over. The steps taken last Friday by the board demonstrates that they are still not convinced they have a problem. Best to let the market cast the deciding vote on this one.