General Electric: A Dividend Cut Would Be A Positive Development, Eventually

Sep. 21, 2018 6:53 AM ETGeneral Electric Company (GE)79 Comments
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WG Investment Research


  • The bear (i.e., JPMorgan's Stephen Tusa) lowered his price target [again] for General Electric to $10 per share.
  • General Electric will need to cut its dividend before the stock finally finds its footing, in my opinion.
  • I plan to stay long the stock. What are your plans?
  • Looking for a portfolio of ideas like this one? Members of Going Long With W.G. get exclusive access to our model portfolio. Start your free trial today »

On September 20, 2018, General Electric's (NYSE:GE) stock was under pressure after a well-known JPMorgan analyst, Stephen Tusa, lowered his price target for the struggling conglomerate from $11 to $10 per share.

ChartGE Price data by YCharts

Mr. Tusa outlined his near- and long-term concerns for GE's Power unit and stated that he is concerned that the company's financial and fundamental risks may not fully be factored into the stock price.

As a long-term shareholder, this downgrade is concerning, especially when you consider the fact that it came from a bear that has consistently been right on his GE calls over the last two years. More importantly, however, Mr. Tusa's investor note instantly brought me back to the thoughts that I outlined in "GE: The Other Shoe Should Drop Soon" - i.e., GE's dividend should either be entirely cut or at least reduced to a more-manageable amount (a dividend yield well-below 2%).

If GE cut its dividend, I believe that the stock would face downward pressure but, in my opinion, it would finally be a step in the right direction. At the end of the day, I plan to stay long the stock but prospective investors should seriously consider the main risk factor before putting new money to work in GE.

The Short-Term Risk: Maintaining The Dividend During A Period Of Uncertainty

GE maintaining its rich dividend is a risk that investors need to start baking into the equation. In this CNBC interview, almost every analyst on the desk agreed that there is no reason for GE to be paying such a healthy dividend. Moreover, there is a large number of pundits that believe that GE shares are being weighed down by the prospects of another dividend cut.

Simply put, I do not believe that GE should be paying an almost

ChartGE Dividend Yield (NYSE:TTM) data by YCharts

ChartGE data by YCharts

ChartGE PE Ratio (Forward) data by YCharts

If you would like to get more of my analysis and investing ideas, whether on GE or anything else, consider signing up for Going Long With W.G. You can get a two-week free trial, so have a look!

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long GE, BHGE. 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.

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