General Electric Co. (NYSE: GE) announced on Monday that the company will be cutting its quarterly dividend in half from $0.24 per share to $0.12 per share. The change is expected to be be in effect by December. GE shares were down 3.5 percent shortly after open.
“We understand the importance of this decision to our shareowners and we have not made it lightly. We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation," said John Flannery, Chairman and CEO of GE.
GE’s dividend cut comes after the company’s poor third quarter earnings. In the third quarter, GE reported 40 percent decrease in cash flow on a non-GAAP basis from $2.9 billion to $1.7 billion. year over year.
Analysts are projecting that the dividend cut will generate back nearly $4 billion in cash annually.
Along with the dividend slash, GE is now diverting its attention to the company’s three primary revenue drivers: aviation, power, and health care, according to The Wall Street Journal. These three segments of GE generated nearly 60 percent of its net revenue in 2016.
Flannery is also expected to sell or exit other segments of the company. GE has already sold of its segments, such as selling off its Industrial Solutions business to ABB for $2.6 billion and a speculation that GE may sell its railroad business.
But the dividend cut still worries investors because it shows that the company cannot keep a consistent cash flow from its operations. This also troubles investors because now that GE is diverting its focus into three segments alone, people are unsure how revenue and income will flow for the future.
"The dividend remains an important component of GE’s capital allocation framework,” Flannery added, “We are acting with urgency to make GE simpler and stronger to drive growth and create more value for our shareowners.”
GE still ranks as Dow’s worst performers this fiscal year. Shares have now fallen 37.3 percent year over year after the dividend cut.