GE Cuts Dividend To 1 Cent

General Electric Company (NYSE: GE) will pay shareholders 1 cent per share per quarter in dividends after announcing a major reduction in conjunction with its third-quarter earnings report.

What Happened

GE said it earned 14 cents per share in the third quarter on revenue of $29.573 billion, which fell short of the 22 cents per share and $28.85 billion Wall Street analysts expected. The company also announced a $22 billion non-cash goodwill impairment charge of $22 billion related to GE Power and will split the power unit in two divisions.

As part of an initiative to bolster GE's balance sheet, the company said it will lower its quarterly dividend from 12 cents per share to 1 cent per share. The move will save the company around $3.9 billion of cash per year while paying investors around $300 million per year.

GE confirmed on its conference call the U.S. Securities and Exchange Commission and Department of Justice are expanding a probe related to the $22 billion charge the company took in the third quarter as part of M&A deals it made within the power business. GE said it's "cooperating with the SEC and DOJ as they continue their work on these matters."

Why It's Important

GE's new dividend of 1 cent per share is lower than what the company paid to investors in the 1960s when adjusting for inflation.

Heading into Tuesday's release, Gordon Haskett's John Inch told Benzinga's PreMarket Prep a dividend cut was "inevitable" as the company doesn't generate sufficient cash flow to support its payout. He also said recently appointed CEO Larry Culp would be wise to slash the dividends only once otherwise his credibility would suffer.

The rise and fall of GE's dividend. $GE pic.twitter.com/N94g4obhFM

— Ed Crooks (@Ed_Crooks) October 30, 2018

What's Next

GE's revised dividend payout will become effective when the board of directors announces its next dividend deceleration which is expected in December.

"We are on the right path to create a more focused portfolio and strengthen our balance sheet," Culp said in the press release. " My priorities in my first 100 days are positioning our businesses to win, starting with Power, and accelerating deleveraging."

GE's stock sold off after trading slightly higher in Tuesday's pre-market session; the sell-off began during the call when GE discussed the SEC probe.

At time of publication, shares were down 2.3 percent at $10.90.

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