General Electric’s dividend could be in danger even after the industrial giant slashed it in two, an analyst at JPMorgan said Tuesday.
“The lower was within the realm of possibility, and is fundable in the near term with debts and asset sales, though a downturn or spin/split would make for another chapter in this debate,” JPMorgan analyst C. Stephen Tusa explained in a note to investors.
GE lower its dividend by 50 percent to 12 cents a talk about on Monday, the largest dividend cut by a good U.S. company beyond the financial crisis. Prior to Monday, GE had lower its dividend simply twice since 1899. The cut was made as CEO John Flannery attempts to turn around the 125-year-old conglomerate.
Trimming the dividend yield, which was the second-greatest among Dow Jones commercial stocks, could offer Flannery more capital to invest in GE’s turnaround but also will make long-time shareholders flee.
At current prices, GE’s yield under the different dividend (effective in December) will be 2.5 percent.
GE on Monday as well cut its 2018 earnings forecast to $1 per talk about to $1.07 per talk about.
“Keeping it simple and working with adjusted numbers at $1.00, with sector low FCF [free cash movement] conversion, substantially lower GAAP quantities and limited progress through 2020, we think a price reduction is warranted and our $17 PT now seems generous at a 4.3 percent FCF yield (on normalized 2019 FCF vs sector at 5.5 percent) and 2.8 percent div yield, triangulating around a dividend that still represents a 65 percent payout,” wrote Tusa.
GE is by far the worst-performing stock in the Dow this season, falling nearly 40 percent. Additionally it is one of only six Dow parts that were are lower for 2017 by Monday’s close. On the other hand, the Dow has risen sharply this season, gaining 18.6 percent.
The business also issued profit and free cash flow guidance for 2018 on Monday that disappointed Wall Street analysts. GE as well announced it could cut its number of board seats and that it’ll focus on its healthcare, aviation and strength businesses moving forward.
GE shares dropped 7.2 percent on Monday, marking their worst working day since 2009. On Tuesday, the stock fell 2 percent in early on trade.
“We, just like Bulls, had expected more, and most notably the price out targets here weren’t as ambitious because so many expected,” Tusa said.