Last week General Electric reiterated for the second time that it will continue paying out a quarterly dividend of $0.31/share in 2009. GE is going thought a difficult transition, as it is trying to deleverage and decrease the profit contribution of its GE Capital unit from 50% to 40%. Furthermore the company is also trying to maintain its triple A rating and to keep its dividend safe.
With GE’s earnings expected to be around $0.50 in 4Q 2008, the earnings per share for 2008 in total comes out to $1.88-$1.90. If the dividend is maintained at $1.24, then the payout ratio will climb to its highest levels since 2005. The deleveraging factor of 6, is a result of the company lower outstanding commercial paper balance to $50 billion from $75billion. Furthermore GE now plans to issue about $45 billion in long-term debt next year, which is less than the $66 billion it has maturing. The company received $3billion in funding from Warren Buffett and $12.2 billion from sales of common stock.
Due to the decrease in leverage it seems that the new GE that will emerge after the financial crisis is over will be different. I doubt that the new GE will be able to grow its earnings in the double digits, assuming that its leverage is lower, which allows for less flexibility to fund projects that make profit for shareholders. Furthermore given the fact that the dividend costs about $13 billion annually, I see an increased chance of a dividend cut. Just because the company reaffirms that it won’t cut its dividends, doesn’t really mean that it won’t do it two months later. Citigroup(C) and Bank of America (BAC)were two noticeable companies, whose CEO’s claimed that their dividends were safe, only to reduce them several months after those statements.
If GE doesn’t cut its dividends keep holding shares of the company, without adding any new funds to the position would be a good move. If General Electric does cut its dividends however, the wise decision would be to allocate your funds in other opportunities.
Full Disclosure: Long GE
Relevant Articles:
- Which Bank will be next? Follow the dividend cuts
- Analysis of General Electric
- Bank of America (BAC) Dividend Analysis
- Should you sell after a dividend cut?
Popular Posts
-
The S&P Dividend Aristocrats index tracks companies in the S&P 500 that have increased dividends every year for at least 25 years ...
-
A dividend champion is a company which has a 25 year record of annual dividend increases. There are only 146 such companies in the US toda...
-
Today marks the 18th year of the Dividend Growth Investor blog. I started it on my kitchen table 18 years ago, as a way to share my throught...
-
Anne Scheiber worked as an auditor for the IRS. She retired at the age of 51 in 1944, and focused on managing her portfolio for the next 51 ...
-
The S&P Dividend Aristocrats index tracks companies in the S&P 500 that have increased dividends every year for at least 25 years ...
-
There has been a lot of buzz recently about the emergence of large trillion dollar companies. It looks like every investor out there wants t...
-
A dividend king is a company that has managed to increase dividends to shareholders for at least 50 years in a row. There are only 52 such ...
-
Warren Buffett's investment in Coca-Cola (KO) is really fascinating. He started buying it in 1988 after the 1987 Stock Market crash. Buf...
-
Dividend Capture strategies are gaining popularity among speculators who don’t want to be too exposed to market risk, while also being able...
-
Realty Income $O stock has declined by 42% off the all-time-highs set in February 2020 of $82.23/share It's still above the pandemic low...
