GE Slashes Dividend Rate, Remains Focused On Restructuring

General Electric Company’s (NYSE:GE) board of directors recently approved a quarterly cash dividend of 1 cent per share. The dividend rate is nearly 91.7% lower than the previous rate of 12 cents per share.

The company stated that the new dividend will be paid on Jan 25, 2019, to shareholders of record on Dec 20, 2018. General Electric’s ex-dividend date payment date is Dec 19, 2018.

Concurrent with the third-quarter earnings release (on Oct 30, 2018), General Electric had communicated about its intention to trim the quarterly dividend rate to a penny, in sync with its ongoing business portfolio-restructuring program.

Prior to this, on Nov 13, 2017, General Electric had slashed its quarterly dividend payout by 50%, from 24 cents per share to 12 cents per share (made effective from December 2017). The company stated that the move was necessary in light of its aim to boost the existing cash position.

Affording disappointment of shareholders, General Electric has trimmed down its dividend for improving its existing cash position. The company intends to fund new organic investments, acquisitions and new pension programs with increased liquidity. In addition to this, General Electric also plans to repay its outstanding debt obligations with the same. Notably, the company stated that its latest dividend cut will enable it to hold around $3.9 billion cash on an annualized basis compared to the previous payout level.

GE Business Portfolio Restructuring Program

In a bid to become a high-tech industrial company, General Electric rolled out a business portfolio-restructuring program this June. In sync with this, the behemoth intends to become more competent by focusing on three core segments — power, aviation and renewable energy — and gradually exit all other businesses.

Per its restructuring plans, General Electric has planned to turn GE Healthcare into a stand-alone company, and also exit from its oil and gas businesses by disposing off the company’s 62.5% interest stake in Baker Hughes, a GE company (NYSE:GE) . These apart, GE Transportation will be sold to Wabtec Corporation and efforts are on track to shrink the company’s GE Capital business.

Concurrent with the third-quarter earnings release, General Electric announced two new additions under its existing restructuring program. First, the company decided to slash down its dividend rate and the second move called for reorganizing the reorganizing the existing Power business structure into two separate units. One unit will include General Electric’s Gas lifecycle business and the other will combine its Grid, Nuclear, Steam, and Power Conversion businesses. In line with this, the company also intends to consolidate GE Power’s headquarters structure to ensure these units can offer superior customer services.

Our Take

General Electric is poised to grow on the back of stronger innovation, strategic restructuring moves, solid international presence and robust end-market sales. The company pulled off a positive average earnings surprise of 3.53% in the past four quarters. However, over the past month, this Zacks Rank #5 (Strong Sell) stock has lost 12.3%, wider than the 4.4% loss recorded by the industry it belongs to.

Weakening Power business remains the key cause of concern for General Electric. Of late, certain market and execution challenges have been weighing over the segment’s revenues and profitability.

Key Picks

Two better-ranked stocks in the same space include:

Crane Co. (NYSE:CR) carries a Zacks Rank #2 (Buy), currently. The company pulled off a positive average earnings surprise of 5.04% in the past four quarters. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Federal Signal Corporation (NYSE:FSS) also holds a Zacks Rank of 2, at present. The company delivered a positive average earnings surprise of 21.18% in the trailing four quarters.

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