GE halves its dividend — only the third cut in its 125-year history
New York — General Electric chopped its quarterly dividend in half on Monday, new CEO John Flannery’s first move in an overhaul of the conglomerate.
More details of the review followed later in the day.
GE cut the dividend to 12c per share from 24c starting in December, in a move that is expected to save the company about $4bn in cash annually.
Its shares were up 0.7% at $20.64 in premarket trading. The stock is the worst-performing component of the Dow Jones industrial average this year, down 35% by Friday’s close.
Flannery plans to focus on three of GE’s biggest business lines — aviation, power and healthcare — the Wall Street Journal reported earlier on Monday, citing a person familiar with the matter.
GE said it would narrow its focus to power, healthcare and aviation business, and set an earnings target between $1.00 and $1.07 per share for next year, a drop from its earlier forecast.
GE also said it would cut its board size to 12 from 18 members and add three new directors in 2018, at an annual investor event.
The company said it was focusing on businesses where it saw the best growth potential; where it had good technology, scale and a large base of installed customers; and where it could use its digital software to enhance performance.
Investors gathering in New York to hear Flannery’s presentation told Reuters that GE’s plan as outlined so far was largely as expected, but left open the question of how the company would generate the cash flow that it has failed to deliver in recent years.
GE will provide details about its business and strategy at an investor presentation at 2pm GMT.
Flannery’s strategy is a turning point for the company, which over several decades built itself into a sprawling conglomerate with interests across media, energy, banking, aviation, railroads, marine engines and chemicals.
The move to make GE smaller and nimbler would be a turnaround from the previous multi-business approach taken by former CEOs Jack Welch and Jeff Immelt.
Flannery’s changes would repudiate much of Immelt’s vision of a "digital industrial" company that builds software to manage and optimise GE’s jet engines, power plants, locomotives and other products.
Conglomerates are out of favour on Wall Street, where investors prefer to bet on specific industries rather than a mixed portfolio.
GE executives have said that analysts have undervalued the company’s digital business. They argue the digital units should be valued more like Amazon.com, Alphabet’s Google and other fast-growing tech companies.
Analysts have disagreed about GE’s value.
Scott Davis at Melius Research said GE’s parts were worth about $31 per share, based on projected 2020 earnings.
Stephen Tusa at JPMorgan pegged the value of the parts at about $17 per share, based on 2018 financial estimates and lower valuations for units including power, renewable energy and transportation.
GE’s move to cut its dividend is the third time in its 125-year history and is a desperate bid to save cash when the company’s cash flow is deteriorating.
The other two cuts came during the Great Depression and the global financial crisis of 2007-09.
"We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation," Flannery said in a statement.