Don't Rush To Buy The GE Dividend Cut

Summary

• The expected GE dividend cut is finally announced.
• The dividend is cut 50%, freeing up about $4 billion in cash/year for GE.
• The company has many months/quarters/years of work ahead of it.
• There's no reason to rush and buy GE right now; better opportunities will present themselves.
• GE likely moves under 18 in coming sessions based on its historical dividend yield, which should settle at about 3% to 3.5%.

By Parke Shall

General Electric (NYSE:GE) shares were up about 2% in Monday premarket trading on news that the company has slashed its dividend payout by about 50%. After this, the stock fell about 5% intraday on Monday. This move comes after a change in the C suite at GE which succeeded a terrible earnings report last quarter. GE shares are down about 35% this year, while the rest of the S&P 500 is up over 15%.

GE data by YCharts

Many people predicted that this dividend cut would be coming. It is going to free up about $4 billion in cash for General Electric annually. This is a widely assumed to be cash that the company is desperately going to need for its upcoming turnaround, if it is able to engineer one. Today, we wanted to voice our opinion as to why we believe investor should not jump right back into GE shares after this dividend cut. Shares have been bid up about 2% in the premarket session as some investors obviously believe that “the worst is over“ and that the slashing of this dividend now means that things can revert to normal at GE once again. We disagree.

Just as we were unsure that the worst was over after the company's ugly earnings report last quarter, we are not sure that the worst is going to play out as a reaction to this dividend cut anytime soon. This cut is likely going to prompt many longtime and institutional holders who are invested simply for the growth and the dividend to reconsider their investments. The types of funds and individuals who are invested in GE for this reason are not the type of people that can go out and immediately sell their shares and just be over and done with it. Many older

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.