Five months ago, a Deutsche Bank analyst put out a research note speculating that a General Electric dividend cut was coming, issuing a “Sell” rating on General Electric stock as a result. It appears that note was quite accurate, as fears have reached a fever pitch that General Electric (GE) will slash its dividend as early as its November 13 analyst meeting.
Even if GE doesn’t cut its dividend, the damage to General Electric stock has been done: it’s down 30% year to date, and at 22, is trading at its lowest point since early 2013. A change at the top has failed to stop the bleeding. In August, John Flannery took over from embattled Jeff Immelt as General Electric’s new CEO. Flannery has said all the right things, and made significant cuts in an effort to shed $2 billion in costs by the end of 2018. But it hasn’t been enough to convince investors that the company is making any progress.
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The reality is, General Electric has been in decline for years. Under Immelt, the company became an industrial jack-of-all-trades but master of none. That identity crisis cost Immelt his job, and left GE with no real showcase segment or product to hang its hat on. It even jettisoned its signature lighting business because it wasn’t making money. The company as a whole hasn’t been making money of late, with profits declining in four of the last five quarters.
With $134 billion in debt and only $14 billion of cash in its coffers, $2 billion in cuts, mostly to corporate staff, isn’t enough. The entire organization needs a facelift. To get investors excited about GE stock again will require growth, not more cuts. Rampant cost-cutting is a sign of a struggling company, and Wall Street can smell it a mile away.
The one saving grace for General Electric stock was its dividend, which currently yields a healthy 4%. However, that dividend was no longer growing much, with just one one-cent increase in the last three years. Now, it seems, a dividend cut is imminent.
Regardless, there is no reason to buy GE stock until the company figures out what it wants to be. Once one of the market’s most reliable blue-chip stocks, General Electric now feels like a dinosaur. It traded as high as 57 before the dot-com bubble burst and was still at 41 a decade ago. Hit hard by the recession, falling as low as 8, GE stock hasn’t even approached pre-recession levels. The apex came last summer, when the stock hit 32. It has lost nearly a third of its value since then.
Mere rumors of a dividend cut have accelerated GE’s losses. Don’t expect a turnaround anytime soon. GE isn’t a bargain stock. It’s a slowly decaying one.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!