As new GE (NYSE: GE) CEO John Flannery slashes jobs, eliminates use of company aircraft and executive cars, and readies answers to what his future plans are, a large amount of the focus for the near term is whether management will cut the dividend. The answer is almost certainly “yes” As Flannery readies his Monday presentation about his strategic direction, the dividend decision is a tactical one, but will stand as the most important early symbol of a new austerity and cold eyed look at GE’s financials.
Most immediately, Flannery has to show a plan to radically change GE’s direction, make huge layoffs, and move out of some businesses. He has to put himself clear of the decade of bumbled decisions by former CEO Jeff Immelt who had the habit to take two jets on some of his trips instead of one. The jet story is a marker for how badly Immelt judged almost everything about his tenure from earnings to the company’s obsession about it image over its results
The $.96 dividend, which gives shareholders a yield of 4.5% has been a marker of GE’s financial prowess and rock solid balance sheet for years. However, it is worth remembering that GE did cut the dividend in 2009 when its GE Capital division was crippled by the financial disaster which was married to The Great Recession. The current GE crisis is not as acute, but investors still want Flannery to show he can do the right thing, even if it is unpopular
The dividend cut allows Flannery to do two things. The first is show what he can do right away if not yesterday. A restructuring of GE will take quarters, and perhaps years. The other is to demonstrate there are no sacred cows. He is prepared to part of GE’s past as much as is necessary to restore it to favor with investors.
Flannery will cut the dividend. That leaves what he will do next. That will leave a new guessing game about whether his new plans will work