GE slashes dividend by two-thirds

The conglomerate cuts quarterly payout to 10 cents from 31 cents, a move to save the company $9 billion on an annual basis.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Catherine Clifford, CNNMoney.com staff writer

ge.mkw.gif

NEW YORK (CNNMoney.com) -- General Electric said Friday that it plans to cut its dividend by 68%, to 10 cents from 31 cents a quarter, a move the conglomerate says should save it $9 billion a year.

Shares of General Electric, a Dow Jones industrial average component, ended the session down 59 cents, or 6.5%, after the news was announced.

"We recognize the importance of the dividend to our shareholders and the significance of this decision, but we believe it is the right precautionary action at this time to further strengthen our Company for the long-term, while still providing an attractive dividend," GE (GE, Fortune 500) Chairman and CEO Jeff Immelt said in a written statement.

"The revised dividend is competitive and reflects what we believe is an appropriate payout in today's market," Immelt said.

General Electric, famous for its light bulbs, is a sprawling conglomerate that has been suffering in the current economic downturn.

It owns a diverse array of companies from media giant NBC, to power generation equipment makers. The company's capital finance division - GE Capital - faced with a frozen credit market has taken the biggest hit during the recession.

The company has been working to juggle both its dividend and its Triple-A credit rating. The Triple-A credit rating allows the company to borrow at cheaper rates, but it also requires GE to have a significant amount of cash on hand.

Immelt said Friday the company has a strong cash position. "We have made tremendous progress in strengthening GE's balance sheet to ensure that the company is well-capitalized and with access to ample liquidity."

In the company's fourth-quarter report, Immelt said "we run the company to have a Triple-A credit rating." He also said that GE "ended the year with $48 billion in total cash."

But ratings agencies have been reconsidering the company's coveted AAA credit rating.

One analyst said that there was not much of a chance that GE would hold onto its AAA credit rating. The question instead was how quickly and how far it would be downgraded.

"You can't maintain the AAA rating. That is gone," said Nicholas P. Heymann, director of global industrial infrastructure at Sterne, Agee & Leach. "The question is that you are trying to mitigagte the rate and the magnitude with which it is adjusted," he said.

Heymann was surprised by the size and the timing of the dividend cut. "They announced the adjustment to the dividend sooner than most expected and secondly they made it a larger reduction than most were expecting." Heymann said most analysts were expecting the dividend to be cut in half.

Ratings agencies weigh in

Ratings agency Moody's said that General Electric's decision to cut its dividend would not get it out of the hot seat. Moody's will continue to review the company for possible downgrade, according to a statement released Friday.

"The reduction in GE's common dividend will address some of the concerns regarding the stress on GE's cash flow," said Moody's analyst Richard Lane in a written statement. "Nonetheless, Moody's is continuing its review of the ratings for possible downgrade."

On Jan. 27, Moody's placed the long term debt of GE and its financial subsidiary, General Electric Capital Corp., under review for possible downgrade.

Standard & Poor's rating agency, which revised its outlook on GE and GE Capital to "negative" on Dec. 18, said Friday the dividend cut would provide the company with more "discretionary cash flow from industrial operations in 2009 than we previously anticipated."

But Standard & Poor's said global economic conditions could still threaten the conglomerate, especially GE Capital (GECC).

"We still intend to reexamine our credit opinions if, for example, deterioration in global economic conditions and GE's industrial businesses becomes more severe than we currently expect, or if we believe that GECC will fall short of its various earnings and other funding targets in 2009, causing us to reevaluate our stand-alone assessment of GECC," the statement from S&P said.  To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.