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Should Investors Expect GE to Further Cut Its Dividends?

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General Electric’s dividend

General Electric (GE) announced a 50% cut in its quarterly cash dividend to shareowners in November 2017. After trimming, the new cash dividend stands at $0.12 per share. GE’s chair and CEO, John Flannery, said, “We understand the importance of this decision to our shareowners and we have not made it lightly. We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation.”

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However, after GE announced the debacle in its GE Capital insurance business, Wall Street analysts started taking a fresh look at its dividends. GE announced that it wouldn’t receive dividends from GE Capital. A few days after this decision, it announced a new $15.0 billion reserve creation over the next seven years in its lending business.

What does Wall Street think of GE’s dividends?

Immediately after GE’s announcement of its dividend cut, Stephen Tusa, a JPMorgan Chase (JPM) analyst and famous GE bear, came up with a note on November 14, 2017. He said the company’s dividend faces a threat even though it’s been halved. In a note to investors, he stated, “The cut was within the realm of possibility, and is fundable in the near term with debt and asset sales, though a downturn or spin/split would make for another chapter in this debate.”

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On March 13, 2018, Tusa raised fresh concerns regarding the sustainability of GE’s dividends. He revised his stock price target for GE downward from $14.0 to $11.0 on the day. He wrote, “We still see structural concerns in the key Power markets, the minimal margin for error on leverage, numerous tail liabilities at both GE and GECS [General Electric Capital Services].” On the same day, GE stock fell 4.4% after the report from JPMorgan Chase.

Dow’s top dividend yield companies

GE ranked second in terms of dividend yield in the Dow Jones Industrial Average. The company’s dividend yield stands at ~3%, which is still far higher than its industrial (XLI) peers such as 3M Company (MMM), Honeywell International (HON), United Technologies (UTX), and Illinois Tool Works (ITW).

In the final part of this short series on General Electric, we’ll turn to analysts for their opinions on the company and its peers.

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