Is the General Electric Company (NYSE:GE) Likely To Cut Its Dividend?
The General Electric Company (NYSE:GE) is expected to cut its dividend when its reports its third quarter results later this week; this is according to reports from analysts at Goldman Sachs and JP Morgan. In this article I strive to make sense of the above assumptions by the analysts at the two investment banks in an effort to discover if there is a strong basis for their conclusions.
GE is expected to announce a cut to its dividends starting in 2018.
The company can sustain its current dividend over the short to medium-term.
GE’s restructuring efforts are good for its future profitability.
Many analysts believe that GE’s cash flow problems cannot be resolved in the near-term, which is why they are predicting that the company will cut its dividend from the current $0.96/share payout to $0.78/share in 2018. However, I believe that John Flannery, the new CEO and Chairman has what it takes to revamp the company’s operations and return it to its past glory.
Although GE’s current cash flow figures are not as good as they were in the past, this is largely because the company is in the middle of a major restructuring effort. The restructuring process has led to the company offloading many of its financing assets totaling about $200 billion, while at the same time replacing some of this lost income with industrial businesses.
The company’s current cash flow problems are likely to be resolved in the medium to long-term as the company restructures into a leaner and more efficient organization. Despite the company’s overall performance declining, it reported double digit earnings growth in its industrial services division in 2016, which shows that the restructuring effort is bearing fruit.
The company might also choose to take on more debt in order to meet its current dividend obligations. This strategy was applied by oil companies such as Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) when global oil prices tanked in 2016.
Therefore, although there is a slight likelihood that GE might cut its dividend, the company has other financing alternatives that could allow it to maintain the current dividend. Despite the company’s stock being on a downtrend for most of this year, it is important to note that GE has met and exceeded the EPS estimates in the last 7 out of 8 quarters.
GE is a strong performer and has a solid business, which are factors that should reassure investors of the company’s positive future prospects. The company is likely to return to profitability once the restructuring process is completed.
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