The day many General Electric Company (NYSE: GE) investors have feared for months has finally arrived. On Monday, GE cut its dividend by 50 percent and said it will be aggressively dialing back its operations.
GE now plans to pay a 12-cent quarterly dividend instead of its previous 24-cent dividend. GE’s 24-cent dividend represented a yield of 4.7 percent, the second-highest yield among Dow Jones industrial average companies. The new dividend yield will be roughly 2.4 percent, slightly below the 2.5 percent overall average for the Dow.
In a statement, GE CEO John Flannery says the dividend cut was necessary as the company restructures.
“We understand the importance of this decision to our shareowners and we have not made it lightly,” Flannery says. “With this action and others that we will be discussing this morning, we are acting with urgency to make GE simpler and stronger to drive growth and create more value for our shareowners.”
The Wall Street Journal reports that GE will be dialing back its operations to focus on aviation, power and health care. GE will also reportedly be looking to divest the majority stake it acquired in oil services giant Baker Hughes (BHGE) acquired about a year ago.
GE stock is holding up relatively well early Monday in the wake of the dividend cut news, trading down by only 0.7 percent. With the stock already down 32 percent in the past year, it’s likely that fear of a dividend cut was already priced into the stock.
On Friday, Vertical Research Partners founder Jeff Sprague said GE had no choice.
“If you look back over the last few years, it was fine that the industrial cash flow wasn’t covering the entire dividend because you had GE Capital covering its fair share,” Sprague said on CNBC. “But the company has…
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