Correction to GE Shares Article Monday

By Ben Eisen Features Dow Jones Newswires

Shares of General Electric Co. took another pounding on Monday, reflecting investor fears that a conglomerate that was once the bluest of blue chips faces challenges daunting enough to force a dividend cut.

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At least six analysts have either downgraded the stock or cut their year-ahead price targets since Friday, when the Boston-based conglomerate missed analysts' earnings expectations and slashed its forecasts. GE's new chief executive, John Flannery, called the quarterly performance "unacceptable" and said he would review the company's 24-cent quarterly dividend.

Mr. Flannery's remarks forced many investors and analysts to reassess their estimates of the company's earnings power, sales growth and capacity to return cash to shareholders in the form of dividends and share buybacks.

On Monday, GE fell $1.51, or 6.3%, to $22.32, making it the worst performer in the Dow Jones Industrial Average on a day when the index declined by 0.2% to 23273.96. The stock is down 29% so far this year, while the S&P 500 is up 15%.

The rout is the latest sign that GE, once the most-valuable company in America, is facing existential challenges revolving around its size, business mix and cost structure.

Many analysts and investors said they believe Mr. Flannery is well equipped to handle the task, but few think the company is on the verge of turning around a run of bad news that has shredded $86 billion in market value this year.

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GE shareholders range from mom-and-pop investors to America's biggest institutions and money managers, such as BlackRock Inc., Capital Group and Fidelity Investments. Many said they are continuing to hold on to GE shares, reasoning that the firm's broad array of business lines and its reputation for cultivating top managers will make the investment a winner in the long term.

"We're holding our nose," said Mike Bailey, director of research at $1 billion wealth manager FBB Capital Partners, which is retaining its shares of GE for the moment. "It's obviously been tough for a lot of folks. The pain for the moment is the dividend fear."

A dividend cut would reduce income for holders of the company's 8.66 billion shares outstanding, and would send a downbeat signal at a time when investors have been loading up on stocks for their income potential, sending the Dow industrials and other indexes to records.

With the 10-year Treasury note yielding less than 2.4%, GE's 4.3% dividend yield -- the firm's stated annual dividend-payout rate divided by its current share price -- has been particularly attractive. The S&P 500's dividend yield is just under 2%.

Index funds operated by Vanguard Group are among the biggest GE owners. The Vanguard Total Stock Market Index Fund, which had $621 billion in assets as of the end of September, by itself owns roughly 205 million shares, or 2.4% of GE's shares outstanding, according to Morningstar.

Mr. Flannery, who had previously committed to maintaining GE's dividend, said Friday that his views are "continuing to evolve."

GE last cut its dividend in mid-2009 just as the financial crisis was ending. Its stock fell 56% in 2008 and rose 6.6% in 2009, far undershooting the major stock indexes. Recently, the company has become known for its dividend growth, increasing its payout by nearly 9% annually between 2012 and 2016, according to FactSet.

Dividends, and the pace at which they are increased and cut, have long operated as a key barometer of corporate health. Academic research has shown that investors tend to bid up shares of companies that initiate payouts and sell those that cut them.

"It's a like a window into the health of the business," said Eric Ervin, the co-founder of Reality Shares, which manages $97 million in its exchange-traded funds. "If they have to cut the dividend, what does that say about the company and management team running the business?"

In August, shares of Israel-based Teva Pharmaceutical Industries Ltd. lost almost a quarter of their value in a day after the company cut its earnings outlook and reduced its quarterly dividend to 8.5 cents from 34 cents the previous period.

Teva shares have continued to fall: The firm's American depositary receipts closed Monday at $14.54 on the New York Stock Exchange, 39% below their closing level on the day of the dividend cut.

Reality Shares buys stocks based on their potential for dividend growth. Its funds have stayed away from GE because of weak earnings growth and free cash flow, among other factors, Mr. Ervin said -- adding, however, that a cut to GE's dividend could be a big part of reviving the company. "Sometimes a business falls on hard times and they have to cut the dividend and it's the right thing to do," Mr. Ervin said.

Some say that with new management taking over, the decline in GE's stock price is a good chance for investors to jump in.

"It's in the new guy's interest to clear the deck and start fresh," said Jack Ablin, the chief investment officer at BMO Wealth Management. He said his firm only holds a small amount of GE shares but would look to buy more if the company's underlying health improves.

Others believe the firm has no choice but reduce payouts.

"We now don't see how" GE can maintain its current rate, said C. Stephen Tusa, an equity research analyst at J.P. Morgan Chase & Co. He said the company would struggle to keep the dividend intact without taking on even more debt.

--Chris Dieterich and Tom Destefano contributed to this article.

Write to Ben Eisen at ben.eisen@wsj.com

Shares of General Electric Co. took another pounding on Monday, reflecting investor fears that a conglomerate that was once the bluest of blue chips faces challenges daunting enough to force a dividend cut.

At least six analysts have either downgraded the stock or cut their year-ahead price targets since Friday, when the Boston-based conglomerate missed analysts' earnings expectations and slashed its forecasts. GE's new chief executive, John Flannery, called the quarterly performance "unacceptable" and said he would review the company's 24-cent quarterly dividend.

Mr. Flannery's remarks forced many investors and analysts to reassess their estimates of the company's earnings power, sales growth and capacity to return cash to shareholders in the form of dividends and share buybacks.

On Monday, GE fell $1.51, or 6.3%, to $22.32, making it the worst performer in the Dow Jones Industrial Average on a day when the index declined by 0.2% to 23273.96. The stock is down 29% so far this year, while the S&P 500 is up 15%.

The rout is the latest sign that GE, once the most-valuable company in America, is facing existential challenges revolving around its size, business mix and cost structure.

Many analysts and investors said they believe Mr. Flannery is well equipped to handle the task, but few think the company is on the verge of turning around a run of bad news that has shredded $86 billion in market value this year.

GE shareholders range from mom-and-pop investors to America's biggest institutions and money managers, such as BlackRock Inc., Capital Group and Fidelity Investments. Many said they are continuing to hold on to GE shares, reasoning that the firm's broad array of business lines and its reputation for cultivating top managers will make the investment a winner in the long term.

"We're holding our nose," said Mike Bailey, director of research at $1 billion wealth manager FBB Capital Partners, which is retaining its shares of GE for the moment. "It's obviously been tough for a lot of folks. The pain for the moment is the dividend fear."

A dividend cut would reduce income for holders of the company's 8.66 billion shares outstanding, and would send a downbeat signal at a time when investors have been loading up on stocks for their income potential, sending the Dow industrials and other indexes to records.

With the 10-year Treasury note yielding less than 2.4%, GE's 4.3% dividend yield -- the firm's stated annual dividend-payout rate divided by its current share price -- has been particularly attractive. The S&P 500's dividend yield is just under 2%.

Index funds operated by Vanguard Group are among the biggest GE owners. The Vanguard Total Stock Market Index Fund, which had $621 billion in assets as of the end of September, by itself owns roughly 205 million shares, or 2.4% of GE's shares outstanding, according to Morningstar.

Mr. Flannery, who had previously committed to maintaining GE's dividend, said Friday that his views are "continuing to evolve."

GE last cut its dividend in mid-2009 just as the financial crisis was ending. Its stock fell 56% in 2008 and fell 6.6% in 2009, far undershooting the major stock indexes. Recently, the company has become known for its dividend growth, increasing its payout by nearly 9% annually between 2012 and 2016, according to FactSet.

Dividends, and the pace at which they are increased and cut, have long operated as a key barometer of corporate health. Academic research has shown that investors tend to bid up shares of companies that initiate payouts and sell those that cut them.

"It's a like a window into the health of the business," said Eric Ervin, the co-founder of Reality Shares, which manages $97 million in its exchange-traded funds. "If they have to cut the dividend, what does that say about the company and management team running the business?"

In August, shares of Israel-based Teva Pharmaceutical Industries Ltd. lost almost a quarter of their value in a day after the company cut its earnings outlook and reduced its quarterly dividend to 8.5 cents from 34 cents the previous period.

Teva shares have continued to fall: The firm's American depositary receipts closed Monday at $14.54 on the New York Stock Exchange, 39% below their closing level on the day of the dividend cut.

Reality Shares buys stocks based on their potential for dividend growth. Its funds have stayed away from GE because of weak earnings growth and free cash flow, among other factors, Mr. Ervin said -- adding, however, that a cut to GE's dividend could be a big part of reviving the company. "Sometimes a business falls on hard times and they have to cut the dividend and it's the right thing to do," Mr. Ervin said.

Some say that with new management taking over, the decline in GE's stock price is a good chance for investors to jump in.

"It's in the new guy's interest to clear the deck and start fresh," said Jack Ablin, the chief investment officer at BMO Wealth Management. He said his firm only holds a small amount of GE shares but would look to buy more if the company's underlying health improves.

Others believe the firm has no choice but reduce payouts.

"We now don't see how" GE can maintain its current rate, said C. Stephen Tusa, an equity research analyst at J.P. Morgan Chase & Co. He said the company would struggle to keep the dividend intact without taking on even more debt.

--Chris Dieterich and Tom Destefano contributed to this article.

Write to Ben Eisen at ben.eisen@wsj.com

Corrections & Amplifications

This item was corrected at 1:37 p.m. ET on Tues., Oct. 24, 2017 to show that Shares of General Electric Co. fell, not rose, 6.6% in 2009.

Shares of General Electric Co. fell 6.6% in 2009. "Dividend Fears Take Toll on GE Shares," at 19:30 p.m. ET on Oct. 23 and 2:47 a.m. ET on Oct. 24, incorrectly stated that GE's shares rose 6.6% in 2009 in the 13th paragraph. (Oct. 24, 2017)

(END) Dow Jones Newswires

October 24, 2017 13:50 ET (17:50 GMT)