General Electric Co. gained in New York trading on Friday after its second-quarter dividend eased Wall Street’s concerns that John Flannery might cut the payout for the second time since he became chief executive officer.
The Boston-based manufacturer, which Flannery is streamlining amid pressure from activist investor Trian Partners, said it would pay 12 cents a share to investors holding the stock as of June 18. Wall Street analysts including Steven Winoker at Swiss Bank UBS had warned previously that the firm would be relying on proceeds from sales of some of its business to pay its $4 billion a year dividend while maintaining a strong credit rating.
“GE can cover the dividend in 2018 and 2019, certainly an achievement in and of itself, but we see little room for error and believe the dividend commitment holds back the segments,” Winoker said in a note to clients last week. GE is likely to generate about $8 billion in cash this year, after buying Alstom’s half of a joint venture in the power business and receiving proceeds from divestitures, he said. After paying its dividend, some $3.5 billion would be left.
Flannery, who took over from former CEO Jeff Immelt in August 2017, outlined a plan late last year to exit the locomotives and industrial lighting markets while focusing on core businesses such as jet-engines manufacturing, medical equipment and electrical equipment. He also halved the quarterly dividend to 12 cents a share, saving about $4 billion with the second cut to the payout in less than 10 years.
Still, the CEO noted in a late May conference that the company — which has planned to sell $20 billion of a still-sprawling portfolio already trimmed under Immelt’s tenure — is well aware of the importance of its dividend to investors.
“We know that that’s a key component of the valuation and attraction of the stock,” Flannery said. “It’s a function of our cash flow. It’s a function of our performance, where our day-to-day focus is. It’s a function of what happens with the portfolio.”
The company agreed in May to merge its locomotives business with Westinghouse Air Brake Technologies, a transaction that will net a cash payment of about $2.9 billion and give GE a 51 percent share of the combined firm.
GE climbed 1 percent to $13.92 in mid-day trading, paring the stock’s decline since Flannery’s promotion to 46 percent.
