GE Dividend Cut No Surprise
Our long-term outlook for the narrow-moat firm remains as new CEO Larry Culp begins his turnaround efforts.
Narrow-moat-rated
We’re not surprised by the dividend cut. If anything, we’re surprised by the firm’s intention to keep the dividend at all. As of the second-quarter earnings release, GE had paid just over $2.2 billion in dividends year to date, but it was in the hole for industrial free cash flow at negative $1.4 billion. Prudent capital allocation dictates that excess cash should be returned to shareholders, but GE has a narrow window of free cash to reinvest to remain competitive in its businesses. This will continue to be an issue as Moody’s and Fitch re-examine GE’s credit rating. It would have been our preference for the dividend to be eliminated in its entirety. Culp says the move should allow GE to retain about $3.9 billion of cash per year compared with its prior payout level.
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