The Story:

General Electric on Monday said that it was chopping its dividend by 50%. While it will free up sorely needed capital to help effect a turnaround for the 125-year-old conglomerate, it is believed that the move may also cause the flight of several long-time shareholders.

Important Because:

  • Industrial operations at GE have been struggling with sales growth and cash flow over the past few years.

  • The dividend payout was a serious drain on funds; in 2016 GE’s net profits came in at a little under $8.2 billion, but it was $630 million lower than the dividend payout for the year.

  • With few choices left, GE has taken the hard decision to cut dividends by half.

GE’s new CEO, John Flannery, named for the position on August 1, will take over the role of chairman and CEO on January 1 of next year.

The move to push some tough decisions through and free up some cash ahead of his appointment appears to be a smart one.

This Happened:

  • In its long dividend history, GE has only cut payout twice: 1939 and 2009. The company has been paying dividends since 1899.

  • In 2016 the company paid $8.8 billion in dividends, making it one of the largest dividend payers in the country.

  • Quarterly payout is being cut from 24 cents to 12 cents, and will come into effect as the next dividend is declared, which is expected next month.

According to Flannery:

“We understand the importance of this decision to our shareowners and we have not made it lightly.  We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation.”

Read the company’s full announcement here.

 

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