GE's demolished dividend destroys shareholders' safety net


NEW YORK (Reuters) – General Electric Co shareholders suffered another blow on Tuesday.

FILE PHOTO: The General Electric logo is displayed on the General Electric Offshore Wind Turbine in Montoir-de-Bretagne near Saint-Nazaire, Western France, November 21, 2016. REUTERS / Stephane Mahe / File Photo

The US industrial conglomerate said it would restructure its energy unit, and said it was faced with a deeper accounting test when new general manager Larry Culp tried to revive the struggling company.

GE's share price fell 10 percent, dropping below $ 10 to reach its lowest level since early 2009. GE's shares, which were booted from the world-class Dow Jones Industrial Average earlier this year, have fallen more than 40 percent this year since the end of 2016, losing two-thirds of their value.

For long-standing shareholders, the third quarter report has delivered another bitter pill. Cash-strapped GE has almost completely abolished its quarterly dividend and reduced it to one cent per share of 12 cents.

The dividend cut marks a major change for GE, whose stocks have routinely offered a higher dividend yield than the S & P 500 over the past 15 years.

Graphic: The profitable days of GE are over – tmsnrt.rs/2CTVGgG

The $ 4.17 billion dividend cut is the eighth largest in the history of S & P 500 companies, according to Howard Silverblatt, Senior Index Analyst at Standard & Poor's.

According to Silverblatt, GE also holds the title for the largest dividend reduction, as it cut $ 8.9 billion in February 2009 during the financial crisis when Jeff Immelt was CEO.

GE also claims ninth-place dividend cuts, a $ 4.16 billion cut made a year ago under late CEO John Flannery. This puts GE three places in the top 10 for Silverbatt's list of the biggest cuts of all time.

At its peak, GE donated more than $ 12 billion a year in dividends to shareholders. It will pay out less than $ 500 million next year.

Chart: Dwindling dividend from GE – tmsnrt.rs/2CR3jEL

GE's one-time payoff helped keep shareholders away from the rocky performance of the stock. GE shares have plummeted nearly 50 percent over the past ten years, but total returns, including reinvested dividends, were down just 26 percent.

Now shareholders can no longer rely on the safety net of a rich dividend.

Chart: Total GE return over 10 years – tmsnrt.rs/2P3MnT2

After market capitalization of the largest US companies, GE's market capitalization on Tuesday fell below US $ 90 billion, less than one-sixth of the 2000 level.

Falling market capitalization has also meant that the impact of the one-off economic footstep on the S & P 500 benchmark has also fallen dramatically. Their influence on the S & P 500 is now less than 1/10 of the impact of Apple, the largest US company with a market value of $ 1 trillion.

Graphic: The dwindling impact of GE on the S & P 500 – tmsnrt.rs/2CPI1ayGraphic: GE was once a stock market tmsnrt.rs/2COGl18

On Tuesday, GE reported a loss of $ 22.8 billion for the third quarter as it posted goodwill of $ 22 billion as the promised profits from its power plant are now unlikely.

GE has not lowered its earnings forecast for the year from the current 1.00 to 1.07 per share.

However, according to the data from Refinitiv, the analysts expect a further decline in the annual result, which will lead to a steady decline in GE's profits.

Graphic: Shrinking GE – tmsnrt.rs/2OxFQyV

Reporting by Lewis Krauskopf and Dan Burns; Edited by Leslie Adler

Our standards:The Thomson Reuters Trust Principles.

,