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GE Stock: Is a Dividend Cut Imminent?

Wayne Duggan

General Electric Co. (NYSE: GE) stock traded down more than 3 percent on Friday morning to its lowest levels since 2015 after the company reported a huge third-quarter earnings miss and cut its full-year guidance. GE stock is now down more than 27 percent so far in 2017 as the company continues to frustrate investors with its lack of progress.

GE reported third-quarter earnings per share from continuous operations of 29 cents, well short of consensus Wall Street estimates of 49 cents. Third-quarter revenue of $33.4 billion beat analyst estimates of $32.5 billion.

The earnings miss prompted GE to aggressively gut its full-year EPS guidance from a range between $1.60 and $1.70 to a new range between $1.05 and $1.10.

GE's quarter was weighed down by weak performance in its power and oil and gas businesses. Profits in the power segment dropped 51 percent to $611 million on the quarter. GE's oil and gas segment generated an overall loss of $36 million.

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GE's third quarter is the first under new CEO John Flannery, who joined the company in August. GE is expected to provide shareholders with an update on its long-term turnaround strategy in November.

At this point, one of the few remaining bright spots for General Electric shares is the stock's generous 4.1 percent dividend. But with the company struggling so much to meet profit expectations, Wall Street analysts are speculating about a potential GE dividend cut.

"A small number of analysts have recently suggested it might be prudent for GE to cut its dividend if challenging business conditions persist in the future," says TD Ameritrade chief strategist J.J. Kinahan.

Harbor Advisory's chief investment officer Jack De Gan says GE stock's struggles are particularly discouraging given the extremely strong economic backdrop.

"Other industrials or peers are meeting or exceeding earnings expectations, they're holding or raising their dividends, and here we have GE, longest standing member of the Dow, ratcheting down earnings expectations and entertaining the possibility of a dividend cut," De Gan said on CNBC Friday morning.

"It probably has vulnerability to $20 or $21 with a dividend cut, and clearly a dividend cut would free up a lot of flexibility for John Flannery to execute his restructuring."

[See: 7 of the Best Stocks to Buy for 2017.]

GE investors have been waiting on a new strategy for a long time. Following Friday's sell-off, GE stock is now down 45.3 percent overall in the past 10 years.

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.