General Electric Company (NYSE:GE) is in dire straits.
The industrial conglomerate’s stock hit a near six-year low this week, following a big dividend cut aimed at preserving cash. But as CNBC reports, even that may not be enough, according to one prominent Wall Street analyst:
“The cut was within the realm of possibility, and is fundable in the near term with debt and asset sales, though a downturn or spin/split would make for another chapter in this debate,” JPMorgan analyst C. Stephen Tusa said in a note to investors.
GE cut its dividend by 50 percent to 12 cents a share on Monday, the largest dividend cut by a U.S. company outside of the financial crisis. Prior to Monday, GE had cut its dividend only twice since 1899. The cut was made as CEO John Flannery tries to turn around the 125-year-old conglomerate.
Undoubtedly, Flannery has a very tough job ahead of him. He inherits a company whose best days are clearly behind it — a former powerhouse that’s fallen behind in key technological areas where it used to thrive, crushed by massive pension obligations that it’s nowhere near being able to fund.
Cutting its dividend was a necessary step to ensure short-term financial stability, but Tusa notes the new dividend “still represents a 65 percent payout.” That’s refers to the stock’s payout ratio — the percentage of its annualized dividend versus annualized earnings per share (EPS). If EPS continues to wane, that ratio could rise very quickly, putting the company at risk of not being able to fund the dividend.
General Electric Company shares rose $0.17 (+0.93%) in premarket trading Thursday. Year-to-date, GE has declined -40.68%, versus a 16.36% rise in the benchmark S&P 500 index during the same period.