GE Surprises Wall Street by Keeping Imperiled Dividend Intact

GE Surprises Wall Street by Keeping Imperiled Dividend Intact

General Electric Co. shareholders can breathe a little easier. At least for now.

The board declared a 12-cent dividend, holding the payout steady for another quarter despite growing concerns that it would get cut. The dividend is payable July 25 to owners of record at the close of business June 18, GE said in a statement Friday.

The decision offers a small salve to investors still reeling from a slump that has wiped out $120 billion of GE’s market value in the past year. The Boston-based company has languished at the bottom of the Dow Jones Industrial Average while contending with troublesome financial liabilities, an accounting investigation by U.S. regulators and a weak market for its signature gas turbines.

While GE doesn’t typically change the dividend midyear, fears of a reduction had multiplied as cash generation slowed and the asset base shrank. Chief Executive Officer John Flannery, who took the helm from Jeffrey Immelt last year, chopped the dividend in half in November as he sought to rein in expenses.

GE rose 0.8 percent to $13.89 a share at 10:32 a.m. Friday in New York, reversing modest losses earlier in the session. The stock was down 21 percent this year through Thursday, the worst performance on the Dow.

Function of Cash

JPMorgan Chase & Co. said this week that GE needs to raise at least $30 billion to bring down its leverage. RBC Capital Markets pointed out that the options market was pricing in a dividend reduction, with analyst Deane Dray saying that “GE’s cash position has incrementally worsened” this year because of a weaker market for its power equipment and the funding of reserves for a deteriorating insurance portfolio.

Flannery hasn’t ruled out another cut, telling Wall Street analysts last month that the dividend level would be a function of cash flow, operating performance and potential changes to the portfolio, which also includes jet engines and ultrasound machines. The current payout costs GE about $4.2 billion a year.

“We’ve got to still see how this plays out,” Flannery said at the Electrical Products Group conference. The May 23 comments sparked GE’s biggest one-day stock selloff in nine years.

Flannery is expected to provide an update in the coming weeks on his plans for GE’s portfolio. Nelson Peltz, whose Trian Fund Management holds a GE board seat, said Thursday that all options were on the table.

GE agreed last month to merge its locomotive operation with Wabtec Corp. in a deal valued at $11.1 billion.

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Author: HEDGE

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