Why do some GE investors want another dividend cut?

"According to GE, the cuts are better, given GE's catastrophic financial situation," said John Inch, an analyst at Gordon Haskett Research Advisors, who said his polls show investors are expecting a reduction dividend.

GE is expected to release its results for the third quarter on Tuesday morning, after postponing publication for a week to give new CEO Larry Culp, who took office Oct. 1, more time to review the activities.

The company had already planned to reduce the annual dividend by 48 cents per share after the split of its health care business, a decision that should not be completed before this year. But earlier this month, GE had warned that its cash flow and earnings would fall short of its 2018 targets due to the struggling power division.

"GE's current and future cash-free generation prospects are not enough to support the dividend," said Martin Sankey, senior research analyst at Neuberger Berman, a portfolio manager holding 1.1 million dollars. GE shares at the end of June. "Prudence would require that the break occur as soon as possible."

GE had previously stated that it was confident in its cash flow. A spokeswoman declined to comment further.

The Boston-based giant had $ 27.7 billion in cash at the end of June. However, excluding restricted funds and cash held at GE Capital, $ 6 billion was available. It has a total of available credit lines of about 40 billion dollars. The company had a total debt of $ 115 billion as at June 30, including its financial arm GE Capital.

In July, GE expected its industrial operations to generate approximately $ 6 billion of free cash flow adjusted for the year, down from $ 9.7 billion in the prior year and $ 11.6 billion. USD in 2016. from $ 1 to $ 1.07. Analysts currently expect 88 cents per share, according to Thomson Reuters.

A reduction in dividends would mark the second such reduction in one year and complete a reversal of the trend for a company that is one of the most widely held stocks and one of the largest dividend payers. Since 2000, GE has distributed more than $ 150 billion in dividends.

But as liquidity and profits evaporated, GE was forced to withdraw. In June, it plans to sell or split two large business units and reduce the costs of the remaining activities. Culp, a stranger who joined the board of directors in April, was named chief executive earlier this month when John Flannery, a GE veteran, was fired after 14 months of his post.

GE shares closed Friday at $ 11.30, down about 50% since the beginning of the year and close to their lowest levels since the 2008 financial crisis. The stock gave up all the gains she had achieved in the days following Mr. Culp's appointment as Chief Executive Officer.

On Tuesday, the financial performance of the third quarter will be scrutinized, but all ears will be heard on Mr. Culp during his first public appearance as CEO. He has not yet held a conference call or addressed investors, although he has spoken to some institutional shareholders.

Mr. Culp reviewed the company during its first few weeks, focusing on the troubled power division, which manufactures equipment for power plants, according to people familiar with the subject.

The company warned earlier this month that $ 23 billion of acquisitions could be billed for previous acquisitions in the energy sector. He is also repairing a major flaw in a new model of his larger turbines. The problems in the business – the most important of GE – put the leadership of the division on the hot seat.

Another problem is that of GE Capital, a once lucrative financial services company, which has become a source of setback for GE. Earlier this year, GE announced that it had to set aside $ 15 billion to fill the reserve gap of a traditional insurance company.

Analysts are forecasting a third quarter adjusted profit of 20 cents a share on a $ 29.9 billion business, according to Thomson Reuters. A year ago, GE earned 29 cents a share on $ 33.5 billion.

The key question about Mr. Culp is he's going to run GE as he ran

Danaher

Corp., a small conglomerate that has grown steadily over its 14 years in charge.

Danaher did not pay a lot of dividends while Mr. Culp was at the helm. He has never paid more than $ 100 million in annual dividends during his tenure. A former Danaher executive said Culp preferred to reinvest cash for shareholders rather than pay large dividends.

This approach would be radically different from GE's history, which has generally paid dividends to its many shareholders. Former CEO Jeffrey Immelt cut the dividend during the financial crisis for the first time since the Great Depression, a decision he often called "the worst day of his life".

When Flannery cut the dividend in half last November, he expressed similar sentiments, but said GE did not generate enough cash to cover the annual payment from previous years. This reduction reduced the annual cost of the dividend from $ 8 billion to about $ 4 billion.

Julian Mitchell of Barclays expects GE to keep a dividend, however small, to minimize the impact of the reduction. "A symbolic dividend could help avoid some forced sales by income funds," he said.

To raise funds, Mitchell and other analysts said GE could accelerate some of its planned asset sales, such as its 62.5 percent stake in an oil and gas company.

Baker Hughes, a GE
Co.

GE is not permitted to sell its current value of approximately $ 19 billion until July 2019 as part of an agreement in 2016 to merge its energy.

Baker Hughes
.

The other option for GE is to suspend the dividend during its turnaround.

BP

PLC took such a step in 2010 by halting its dividend to help pay for the massive cleanup of an oil spill in the Gulf of Mexico, which regained a lower dividend a year later.

"The suspension allows the money to replenish itself and when the company is in better health, it can start paying again," said Scott Davis, an analyst at Melius, who favors GE's temporary halt. rather than the elimination of the dividend.