GE Bloodbath Continues Following Largest Dividend Cut Outside of Financial Crisis

Rumors of a dividend cut at GE have been swirling all year. Today, we had an announcement that GE would cut its dividend for only the second time since the great depression. GE also announced it was shedding assets. The announcement was not priced in. Shares dipped another eight percent.

General Electric, the nation’s largest industrial company, cut its dividend on Monday, only the second time it has done so since the Great Depression.

The company announced before the start of stock trading that it would reduce its quarterly payout by half, to 12 cents a share from 24 cents a share.

Last month, when G. E. reported disappointing financial results, Mr. Flannery said that the company would sharpen its focus on fewer industrial businesses and shed at least $20 billion in assets over the next two years.

There may well be more. Mr. Flannery added detail to his plans for G. E.’s future in a presentation on Monday. The units to be disposed of, he said, would probably include the lighting, and railway locomotives divisions and an industrial solutions business that sells energy-distribution and monitoring equipment. Ten smaller assets, which Mr. Flannery declined to identify, will also be shed.

October Lie

On October 11, CNBC reported these amusing details.

In a GE research note, JPMorgan analysts said "A dividend cut or 'adjustment' as it is likely termed, is increasingly likely."

A GE spokeswoman replied "The dividend remains a top priority."

On Squawk Box Cramer proposed the board should have said: 'The board has listened to what people are saying, and the board has tremendous confidence, and the dividend will be kept intact at these prices.'"

Despite criticizing GE's statement on the dividend, Cramer said he still has confidence in new GE chief executive John Flannery.

Oops Department

According to Blair, "GE basically said they need a world war to cut the dividend." Obviously, that was his interpretation.

Largest Dividend Cuts in History

GE Weekly Chart

Jim Cramer's Big Mistake

  • General Electric is not worth $20 per share — around the level where it opened on Monday, CNBC's Jim Cramer says.
  • GE's forecast of free cash flow between $6 billion and $7 billion is "suspect," he says, adding there are divisions that are not "up to snuff."

Given Cramer's track record, today's dip just may well be a good buying opportunity, at least for the short term.

Here is a possible counter-point.

Mike "Mish" Shedlock

Mish - GE is another pension story / underfunded and growing. When I saw how big their pension liabilities were a few months ago, I sold. Another pension issue causing a “giant” at the best of times to become crippled.

“Tim-birrr !!!”

GE used to be a manufacturing company that has a small financial arm.
Then it became a financial company that happen to make a few things.
Then it went bankrupt until a massive obama bailout.
Then its CEO (Jeffrey Immelt) was appointed as the Head Of Obama's Jobs Council while simultaneously closing US factories and shipping thousands of jobs to China.
But all the graft and corruption didn't work.

It is a surprise that they actually cut the dividend, even though it was actually the right move. There are a large number of companies in the S&P that are paying dividends they are borrowing to pay for- literlly insanity.

I think GE is just slowly trying to unwind all the damage that Jack Welch did via his financial engineering through the GE Capital division. It will take decades to fix completely. I also think this move exposes the lie of the dividend growth investing cult. Yes, sometimes dividends do get cut. And I suspect there will be a whole lot more cutting, rather than raising of stock dividends, once the current market bubble pops.

G.E. hasn't been the same since it got out of financial services. During that time it was mis-understood. People thought it was a conglomerate but it was a financial stock covered by conglomerate analysts who never understood the financial engineering. When that blew up they had no way to manipulate the balance and cashflow statements. Return on Equity and Pretax Margin is way behind companies like Honeywell or even an Ametek and with a shrinking business its only a matter of time before G.E. is removed from the Dow Jones Industrial average which will be a huge psychological blow to the company.

New CEO trashes stock price by dividend cut in order to establish low basis for his stock option incentives. Then asset stripping to fund restoration of dividend and stock price. Big future return for CEO selling his incentive stocks.

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