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
-
I review the list of dividend increases each week, as part of my monitoring process. There were 27 companies that increased dividends over t...
-
I review the list of dividend increases every week, as part of my monitoring process. I usually focus my attention on the companies with a t...
-
I found an interesting paper from S&P Dow Jones on the Dow Jones Dividend 100 Indices. This is the index used behind the popular divide...
-
As part of my monitoring process, I review the list of dividend increases every week. I usually focus on companies that have managed to b...
-
Even so spoke the old farmer to his son: A cow for her milk, a hen for her eggs, and a stock, by heck for her dividends. An orchard for fru...
-
Increasing the dividend is a sign of confidence in the business. I study dividend increases every week, and focus my reviews on the companie...
-
One of the best things you can do as an investor is to audit your investment decisions. This is an underrated factor that can help improve ...
-
The NASDAQ US Broad Dividend Achievers Select Index is comprised of a select group of securities with at least ten consecutive years of incr...
-
In my investing, look for businesses I can understand that have some sort of a competitive advantage that translates into consistent earn...
-
I review the list of dividend increases as part of my monitoring process. There were 15 companies that increased dividends last week. Ten of...