General Electric Cuts Dividends For The Second Time In A Decade | Value Investing News

General Electric Cuts Dividends For The Second Time In A Decade

You probably heard the news that General Electric is cutting dividends for the second time in a decade. The previous time when General Electric cut distributions was in 2009, during the financial crisis.

The dividend cut was not surprising, given the fact that the conglomerate had a high payout ratio amidst a stagnant trend in earnings per share.

For example, the company earned 99 cents/share in 2009, the first year after the financial crisis. By 2016, GE earned $1/share. At the same time, dividends per share grew from 61 cents/share to 93 cents/share. The company is expected to earn $1.07/share for 2017 and has paid 96 cents/share in dividends. The payout ratio was obviously too high, and unsustainable.

When you cannot grow earnings, and have a high payout ratio, you cannot pay dividends.

A lot of commentators saw the dividend cut as evidence against dividends however.

This doesn’t make any sense.

GE’s story is actually a cautionary tale against share buybacks.

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