The “bottom line” for General Electric is the industrial conglomerate must cut its dividend again in order to improve its financial standing, according to analysts at JPMorgan.
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Investors are bracing for the possibility that GE, which already slashed its dividend in half in November, could reduce the quarterly payout amid a broader restructuring of the company. FOX Business’ Charlie Gasparino reported last month that GE is considering another dividend cut as CEO John Flannery looks to meet his goal of shedding $20 billion in costs. Flannery later wouldn’t guarantee the dividend’s survival, saying, “We have to see how this plays out.”
JPMorgan analyst Stephen Tusa estimates that GE will need $30 billion to $40 billion in cash to pay off enough debt to meet requirements set by ratings agencies, he wrote in a research note cited by CNBC and Barron’s. GE can raise cash from the sale of additional assets, such as oilfield services unit Baker Hughes, Tusa said.
But a lower dividend will be necessary for GE to reduce financial risk, according to Tusa. GE, which has paid a dividend since 1899, has cut it only three times.
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“The bottom line is that we see the need to de-risk substantially, which includes the need for cash and a cut to the dividend to help with operational de-levering,” he wrote.
Among Wall Street analysts, JPMorgan has the lowest price target for GE at $11 a share. Other analysts also have downbeat views, with Cowen referring to GE as a “show me” stock with a price target of $12.
UBS warned last week that GE will only be able to cover its dividend by a small margin and there’s little room for error, analysts at the investment bank wrote.
GE has been the worst performer in the 30-member Dow over the past 12 months, falling more than 50%. Shares were down 2.8% on Monday.