Thursday, September 25, 2008

GE won't raise dividend

With all the headlines with respect to General Electric (GE) today, some may have missed some key details regarding the dividend. While announcing a cut to the conglomerate's full-year profit forecast as well as a halt to the share buyback, GE also explained that their board voted to maintain GE's 31 cent quarterly dividend through until the end of 2009. This means that 2009 will be the first year since the 1970's that GE will not raise its dividend.

"Given the recent dramatic developments in the financial markets, we have made some tough decisions to further reduce risk and strengthen our balance sheet while maintaining our dividend,'' added Mr Immelt.

Although all of these decisions by GE to preserve capital seem to have been viewed positively by the market and the rating agencies, I can't help but think that today is a sad day for dividend investors everywhere. One of the largest, most diverse, and most stable dividend growing firms in the world has decided to not raise their dividend for the first time in decades. It will be interesting to see how many companies decide to go this route when faced with the tough financial decisions that the credit crisis has brought.


Nurse B, 911 said...

I feel a number of emotions MG and most of them revolve around wanting to grab my WHACKING STICK! Although I continue to feel the long-term fundamentals of this company are very strong, I'm saddended today.

This ruins a very grand streak established and preserved by great management in the past. "WE WANT JACK" is what I want to hear from investors because in my mind his choice of CEO wouldn't have steered GE in its current direction. I sense changes in the wind very soon and my hope is that a refocused GE emerges stronger than ever before.

Mike said...

Wow - I'm surprised that they said they wouldn't raise the dividend next year - a lot can happen between now and next...say September.

I wouldn't rule it out.


Anonymous said...

They agreed to keep it at 31 cents until the end of 2009 but on CNBC Immelt did say that this decision could be changed. They have a few more quarters before their beautiful track record goes out the window. And I think that just as they want to maintain their 'AAA' status they probably want to grow the dividend next year and will find ways to!

UPOD has always been the way they work, this might just be more of the same.

Dividend Growth Investor said...

This definitely is a sad day for dividend investors. Luckily however, MCD increased their dividend by 33% to $2/year from $1.50

Anonymous said...

Sure its sad, but they did the prudent thing for the present. If their triple A rating is downgraded the stock takes a hit, borrowing costs go up and the dividend is at risk of being cut. As previously stated by someone else- a year is a long time in which anything can happen. I would rather they do it this way and be surprised with a raise than being disappointed each quarter.

Anonymous said...

Telltale sign not to buy a stock, and even consider selling once a tradtional date for an increase is missed.

Anonymous said...

I dont agree that one needs to sell if a dividend increase is missed.

Lowell Miller, who wrote "The Single Best Investment" (90% of my strategy) will excuse year of no growth with a good explaination....i.e rare situation etc, and will sell after 2 years of no growth.

I am hanging on to GE until the end of next year.
HD, and BAC also have until next year to raise their dividends to maintain increase records.

I do agree however that no dividend increase will prevent a purchase.

I maintain a list of companies i wish to own. Recent dividend increases warrant further consideration.

No increase with current holdings = wait up to 2 years.

A dividend cut will result in an automatic sale.

Jake said...

Ouch - and I was thinking about purchasing GE next. Thanks for the info MG

Anonymous said...

Am I the only one that's happy about GE's decision of not raising dividend? I rather they stay healthy for the long run than ruin their future by trying to keep their streak going.

Same thing applies to Bank of America too. Strictly financial speaking, it doesn't make sense to give out more money than you earn and then borrow the difference at a higher cost. The math just doesn't add up.

Disclosure: I own both stocks.

Anonymous said...

Why does the dividend increase matter so much? The dividend is still there. I don't agree with the above mentioned either about tuck tail and run from dividend cuts or reductions.

Does anyone agree with the statement what goes up must come down? Now this doesn't apply directly to investing, but one could argue the longer the streak the greater the risk of missing.

Sooner or later everything comes to an end.

I suppose one of the above posters ran away from Telus at the end of 2001. They reduced the dividend by over 50% and now 7 years later they are 600% higher. Hmmm.

This is just prudent in the wake of current market conditions. I wouldn't get worried until they diluted shares to raise capital.


Thicken My Wallet said...

Maybe I am looking at this differently but is this not an exercise in setting expectations low or conversing cash for an acquisition or a spin-off?

Why is this such a bad thing in rocky times? I would rather have prudent management who plans for the future by pulling back then one who blindly thinks things will always go well and doesn't take measures to mitigate risk.

GE is a 20 year plus stock play. A bad 18 months is a blip in the larger scheme of things.

Anonymous said...

It alarms me that GE agreed to buffetts investment term to raise $3billion. In essence GE agreed to give Buffett a 10% dividend, all the upside of common equity, but less downside because they are preferred, and the amount raised is what GE pays in one quarter's dividend. They are raising capital just to pay the dividend