Three weeks after General Electric new chief executive said it needed to make “some major changes with urgency,” the engineering conglomerate has done just that.
GE said Monday it will cut its quarterly dividend to 12 cents from the prior 24 cent payout due to weaker-than-expected cash flows in its power business, pension costs and hefty insurance claims that have hampered dividends from its financial operations.
The dividend cut is only GE’s second since the Great Depression and continues new CEO John Flannery’s push to aggressively confront the challenges facing the company.
“We understand the importance of this decision to our shareowners and we have not made it lightly,” Flannery said in a news release. “We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation.”
“With this action … we are acting with urgency to make GE simpler and stronger to drive growth and create more value for our shareowners,” he added.
Last month, Flannery called GE’s third-quarter earnings “completely unacceptable” and said it was clear from the results that “we need to make some major changes with urgency.”
As CNN reports, “GE is one of America’s most widely held stocks, and countless shareholders, including retirees, rely on the dividend payments. But the company is under enormous pressure to restore investor confidence shaken by a serious cash crunch.”
GE’s free cash flow, which measures how much cash is being generated after investing in the business, has deteriorated for six straight years. The dividend cut will save more than $4 billion per year, making it one of the largest such moves in the history of the S&P 500.
“The company’s unrealistic earning guidance and its outstretched dividend are now gone; soon Flannery may wield a scalpel to underperforming divisions, or those that fit better in the portfolio of a private equity buyer,” Forbes said.
In trading Monday, GE shares fell 8% to $18.87, the lowest level in five and a half years.
“The company, once a blue chip stock, is now a turnaround play,” Forbes added.