The dividend is NOT safe according to comments by the CEO:
Yesterday, General Electric(GE) bucked weakness in both the Dow Jones Industrial Average and its industrial peers, new questions about its dividend, and negative comments from Moody's Investor Service to gain 0.2%.
Not today.
Shares of GE have dropped 7.5% to $14.15 at 3:00 p.m. today after the company offered guidance at a conference. Although the company stood by its earnings-per-share and cash-flow guidance, its power unit is expected to remain " challenged."
None of this seems particularly surprising, but neither does it address what really seems to be concerning investors. In a note released yesterday, RBC's Deane Dray wrote that he and his team "expect GE's CEO John Flannery to address the increasingly vocal debate over whether the company will be forced to cut the dividend once again due to capital constraints; we also expect an update on its portfolio streamlining initiatives, including the recently-announced divestiture of Transportation."
There's a slide in the report that addresses the company's cash position, including its estimate for a 2018 ending cash balance of $15 billion or more. That includes the $4 billion due in dividend payments. In the question-and-answer session, Barclays analyst Julian Mitchell asked Flannery if he can "stand behind the $0.48 dividend in 2019." Here's his answer, from a preliminary transcript of the exchange:
So let me just come back to a couple of principles. We're doing a ton of work inside the company, a ton of work with the board, and we're being deliberate and methodical about making changes and moves. And when we have things that make sense to announce and bring to you guys, we're going to bring those. We're going to take actions where they make sense and when they make sense. So we're still on that path. With respect to the dividend, I would just come back and say a few things. We've talked before about the importance to our investors. So we know that the key component of the evaluation and attraction of the stock is what's going on with the dividend. We talked about balanced capital allocation, what makes sense for the business in terms of that mix of dividend, et cetera. It's openly a function of the free cash flow of the company, and that's ultimately a function of our operating performance of the assets and things that we do with the portfolio. With respect to the Wabtec(WAB) and the Wabtec(WAB) transaction, right now we're looking and saying we've got to see how this plays out. We've got a lot of other things going on with the portfolio.... We're not locked in fully to the Wabtec(WAB) dividend policy, et cetera. We'll make a specific call about that at the time of closing. But so I'd keep coming back to the main things. It's important to our investors. It's a function of our cash flow. It's a function of our performance where...our day-to-day focuses. It's a function of what happens with the portfolio.
That's not what investors wanted to hear. "GE also spoke to efforts to increase cash flow, and some comments could be interpreted as thinking a further dividend cut may be needed," writes CFRA's Jim Corridore. "GE stock is selling off on these concerns."
