GE swoons af­ter com­pany halves div­i­dend

The Myanmar Times - - Business -

GEN­ERAL Elec­tric sliced its div­i­dend in half Mon­day, sav­ing the be­lea­guered in­dus­trial gi­ant $4.2 bil­lion an­nu­ally as it seeks to re­gain its foot­ing af­ter more than a decade of lag­ging prof­its and poor stock per­for­mance.

Share­hold­ers will see their pay­ments on each share drop from 24 cents a quar­ter to 12 cents, just the third time the com­pany has cut the pay­out in its 125-year his­tory. The re­duc­tion comes as the man­u­fac­tur­ing con­glom­er­ate put in mo­tion a sweep­ing over­haul that in­cludes plans to re­vamp its board of di­rec­tors and sell off busi­ness units, in­clud­ing its sto­ried light­ing busi­ness that dates back to its founder, in­ven­tor Thomas Edi­son.

GE has long been one of Wall Street’s big­gest div­i­dend pay­ers, be­hind the likes of Exxon and Ap­ple. Ev­ery­one from in­di­vid­ual in­vestors to pen­sions to foun­da­tions have re­lied for decades on the GE div­i­dend.

“This is about as bad as we had ex­pected, fol­low­ing third-quar­ter re­sults that were un­doubt­edly worse than most could have imag­ined six months ago,” said JP Mor­gan an­a­lyst Stephen Tusa in a note. Tusa has pro­jected that the price of GE shares could fall to $17; they are cur­rently priced at nearly $19 a share.

Gen­eral Elec­tric chief ex­ec­u­tive John Flan­nery said the de­ci­sion was made to bol­ster the com­pany’s cash hold­ings. GE’s es­ti­mated $7 bil­lion in cash flow this year could not by it­self cover the $8.4 bil­lion div­i­dend pay­out.

“We un­der­stand the im­por­tance of this de­ci­sion to our share­own­ers and we have not made it lightly,” Flan­nery said in a state­ment.

Flan­nery made the an­nounce­ment Mon­day at a highly-an­tic­i­pated in­vest­ment an­a­lyst day in New York City, where he also un­veiled a re­or­ga­ni­za­tion plan to get the for­mer earn­ings pow­er­house back on track.

He said the com­pany would build its fu­ture around its avi­a­tion, health care and power seg­ments. It will jet­ti­son most ev­ery­thing else. Those other parts in­clude a lo­co­mo­tive busi­ness, a large in­vest­ment in oil ex­plo­ration com­pany Baker Hughes and GE’s light­bulb busi­ness.

Gen­eral Elec­tric, the only com­pany re­main­ing on the Dow Jones in­dex from the orig­i­nal list, said Mon­day it will re­vamp its board of di­rec­tors, one of the most pres­ti­gious pan­els in Amer­i­can busi­ness. It is re­duc­ing the num­ber of seats from 18 to an even dozen and three mem­bers will be re­placed. The board, which has been crit­i­cized for al­low­ing GE’s value to plum­met, in­cludes ac­tivist in­vestor Trian Fund Man­age­ment, which re­cently won a seat on the board.

The man­u­fac­tur­ing con­glom­er­ate had long been a pil­lar of Amer­i­can in­dus­try. It has 295,000 em­ploy­ees, com­petes in 180 coun­tries and en­joyed wide re­spect for its man­age­ment and its cor­po­rate gov­er­nance. But the firm stum­bled un­der the reign of chief ex­ec­u­tive Jef­frey R. Im­melt, who re­tired ear­lier this year af­ter 16 years in the top spot. Im­melt had suc­ceeded Jack Welch, a leg­end in cor­po­rate man­age­ment cir­cles.

Flan­nery has been work­ing to re­store con­fi­dence. Af­ter his ap­point­ment last Au­gust, sev­eral top man­agers left the com­pany, in­clud­ing the chief fi­nan­cial of­fi­cer. Flan­nery sub­se­quently grounded the com­pany’s cor­po­rate jet fleet, re­duced the num­ber of cars is­sued to ex­ec­u­tives and an­nounced a re­view of its com­pen­sa­tion poli­cies. Still, the com­pany re­ported dis­ap­point­ing fi­nan­cial re­sults for the third quar­ter

GE shares were trad­ing around $18.83 in mid­day trad­ing Mon­day, a de­cline of more than 8 per­cent on the day. GE be­gan the year trad­ing above $30 and was $25 as re­cently as a month ago.

The new div­i­dend yield will be around 2.3 per­cent, de­pend­ing on the stock’s price.

“That yield had re­ally grown over the last decade,” said Jeff Win­dau, an an­a­lyst with Ed­ward Jones. “There was a large group that owned [the stock] for the div­i­dend. That ra­tio­nale is more muted now. The 50 per­cent cut puts them in line with what the other in­dus­tri­als are pay­ing..”

Win­dau, who rates the com­pany’s stock a buy, said GE’s de­ci­sion to build around core seg­ments such as jet en­gines and health care should show real growth po­ten­tial over the next three to five years.

So does Melius Re­search, but the an­a­lyst team there con­sid­ers the cur­rent stock price “un­fath­omable post the fi­nan­cial cri­sis,” an­a­lyst Scott Davis said in a re­cent note.

“How we got here is still open to de­bate . . . I’m not sure we to­tally know yet or that it mat­ters at this point. What we do know is that GE is a com­pany in dis­ar­ray, cri­sis, with mas­sive brand de­struc­tion, and share­hold­ers are vot­ing with their feet - run­ning away as fast as they can.”

Davis does see op­ti­mism, how­ever. With the price un­der $20, he rates GE a buy with plenty of up­side, in­clud­ing a price tar­get of $35.

“We may still have a rocky next few months ahead of us but we find a highly com­pelling risk-re­turn here.”

– Wash­ing­ton Post

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