Battered industrial conglomerate General Electric has been struggling to turn itself around, and now Goldman Sachs says the company should add a dividend suspension to its turnaround plan.
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"While GE is undertaking several initiatives to improve its balance sheet, including building cash through asset sales and prioritizing internal cash generation, to avoid another dividend cut and potential rating downgrade we think the most prudent action would be for GE to consider suspending its common dividend for the next 18 months," the bank said in a research note.
Goldman Sachs analysts believe that a temporary dividend suspension would actually reduce the risk of another dividend cut while it would allow the company to retain $6 billion over the next 18 months. The money would give the company some liquidity cushion and reduce its dependence on short-term debt. This could mitigate the risk of a credit downgrade.
Goldman acknowledged the tough situation that GE is in, with the stock continuing to underperform. On Tuesday, GE was yanked from the Dow Jones Industrial Average. Year-to-date shares are down almost 27%.
|GE||GENERAL ELECTRIC COMPANY||10.38||+0.11||+1.07%|
Goldman has a 12-month price target of $14 on the shares, adding that if the company were to suspend its dividend, the stock would react negatively.