The big news yesterday was the dividend cut from on of the most prominent dividend aristocrats – General Electric (GE). The company lowered its quarterly payment to $0.10 from $0.31/share for the first time since 1938 in an effort to save 9 billion dollars annually and maintain its AAA rating.
After spending billions on stock buybacks when its stock price was high, the company sold billions in equity to investors during 4Q 2008, including a sale of $3 billion in convertible preferred stock to Warren Buffett.
There had been rumors that the company would cut the dividend payment for over 4 months; every time a rumor of a dividend cut was spreading, Jeffrey Immelt kept reassuring investors that the payment could be maintained well into 2009. Then as more analysts began digging into the company’s financials, it became widely accepted that GE had to either maintain its dividend or lose its AAA rating.
The first sign of trouble came in 2008, when GE reported its 1Q results, which were below the estimates by analysts. The company blamed its poor performance on financial services businesses, which were challenged by a slowing U.S. economy and difficult capital markets.
The second sign of trouble came in September, when the company failed to increase its dividends for the first time in 32 years. At the same time the company suspended its $15 billion stock buyback program, announced in December 2007.
Just a week after GE announced this, the company sold $3 billion preferred stock to Warren Buffett, yielding 10%. In addition to that the company sold an additional 547.8 million shares for approximately 12.2 billion dollars to shareholders.
The CEO kept reassuring investors that everything was ok and that both the AAA rating as well as the dividend could be maintained. The markets didn’t trust him, and GE stock lost almost half of its value in he first two months of 2009.
Another note on the CEO is that he kept buying GE stock all the way down. Many investors viewed his acquisitions of 150,000 GE shares on the open market in the first quarter of 2008 as bullish. This goes on to show that investors should treat insider purchases with caution, and not automatically view them as a bullish signal.
As a result of the dividend cut, I disposed of my whole GE position during the day. The company no longer fits the dividend growth stock characteristics, for which I bought it in the first place. Despite the fact that I am a buy and hold investor, I realize that I would still have a turnover in my portfolio, even if I select my purchases from elite lists such as the dividend aristocrats, dividend achievers and the dividend champions.
I continue seeing a lot of companies increasing dividends in 2009, so I still have a faith in dividend investing.
- Analysis of General Electric
- Dividend Stocks in the news includes General Electric
- When to sell my dividend stocks?
- Warren Buffet’s Investment in Harley-Davidson
I posted my goals for 2016 a few weeks ago. After some changes that I became aware of subsequent to posting the article, I have some change...
The first week of this year has been brutal for many investors. It is during times like these that you see who really is a long-term invest...
In the first two weeks of this year, the stock market has been down a lot . For someone who invests for dividends, I am relatively agnostic ...
It is nice to have a diversified income stream . While many seem to look for a focused method, I look for a diversified method of generating...
ConocoPhillips (COP) just announced that it is cutting its quarterly dividend from 74 to 25 cents/share. This comes after management consta...
Today marks the eight year of Dividend Growth Investor website . I wanted to thank all of you who follow my humble site. I didn’t really exp...
Warren Buffett is one of the best investors in the world . He is skilled in the art of capital allocation. I have always suspected that the ...
Most readers know me as a person that buys a stock in a company I like, and then I keep building a position as long as valuation and allocat...
To be honest, I didn’t do much investing wise in January. Of course, I didn't panic and I stayed the course . Per my earlier article I s...
The first three weeks of this month have been terrible for investors worldwide . It could be painful to watch your portfolio value decrease ...