November 13, 2017 1 COMMENTS

GE cuts dividend for second time since Great Depression

General Electric is slashing its coveted stock dividend in half and getting even smaller by selling storied businesses such as its railroad and light bulb units.

The dividend cut, only GE's second since the Great Depression, shows the depths of the iconic company's financial problems.

GE is one of America's most widely held stocks, and countless shareholders, including retirees, rely on the dividend payments. But the company is under enormous pressure to restore investor confidence shaken by a serious cash crunch.

The stock has lost 37% of its value this year, including a 4% drop on Monday after GE announced the restructuring and diminished financial targets. The new dividend will be 12 cents a share, down from 24 cents.

GE had been one of the biggest dividend payers in the United States, behind giants like ExxonMobil, Apple and Microsoft.

By cutting the dividend in half, GE will save more than $4 billion per year. That makes it one of the largest dividend cuts in the history of the S&P 500 and the biggest since 2009, according to S&P Dow Jones Indices.

GE made an even bigger dividend cut in 2009, during the Great Recession. But dividend cuts are rare these days. Many companies are increasing them because the U.S. economy is healthy and the stock market is booming.

The dividend isn't the only thing getting smaller at GE. The company also unveiled plans to shrink its board of directors from 18 members to a dozen next year. The new board will also include a committee focused on how GE spends its money.

The company plans to get rid of $20 billion worth of businesses in the next year or two, including the transportation division, which houses the century-old railroad business that makes locomotives and rail equipment. Among other units on the chopping block, GE reiterated a desire to sell the light bulb business that has symbolized the company for 125 years.

John Flannery, GE's new CEO, said during a presentation that the company is considering "exit options" for Baker Hughes. Baker Hughes is majority-owned by GE and was only formed last year by combining the two companies' oil and gas businesses.

While Flannery said the merger is "going well," he expressed concern over how much the business depends on volatile energy prices.

GE has already gotten rid of its real estate portfolio, its dishwasher and appliance business, and media properties NBC and Universal Studios. More recently, it unloaded its water business and a unit that makes electrical equipment for utilities.

All this is part of GE's mission to focus on being a modern industrial company that sells things like jet engines, power plants and MRI machines.

Yet some of GE's core businesses are struggling, especially the power division, which has been hurt as utilities switch to renewable energy like solar.

GE warned it now expects to make just $1 to $1.07 per share next year. That's roughly half of the goal GE had less than a year ago.

Flannery wants to bring more accountability to GE, in part by revamping its pay structure. Under the new plan, about half of senior execs' compensation will come from stock rewards, compared with only 20% now.

"This is our time to reinvent the company," Flannery told employees. "This is our time to show our passion, our fury and our resolve. It's game on."

Comments

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ric bee

11/14/17 AT 08:52 AM
Companies as large & diversified as GE,but rein in their reach. But cutting the dividend was avery poor choice.
Flannery will be out of a job very soon. Doing what must be done makes few friends & the shareholders are going to rebel.
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