Stocks seesawed between negative and positive territory on Monday, with investors still trying to foresee the future of tax legislation, and company-specific news dominating the headlines. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) were negative to start the day, but ended with small gains.
Today's stock market
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Interest-rate-sensitive utility stocks were the hottest sector today, and the Utilities Select SPDR ETF (NYSEMKT: XLU) rose 1.2%.
As for individual stocks, General Electric (NYSE: GE) sank after the conglomerate cut its dividend in half, and a report that Hasbro (NASDAQ: HAS) has made an offer to buy Mattel (NASDAQ: MAT) had investors bidding up the shares of both companies.
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GE cuts dividend and gives a gloomy forecast for 2018
Shares of General Electric got slammed today, falling 7.2% after the company announced a 50% cut in the dividend as part of a broad restructuring effort and gave a disappointing outlook for 2018. The quarterly dividend payout will be cut from $0.24 to $0.12, lowering the yield to 2.5% based on today's stock price.
The company emphasized the need to make the dividend payout sustainable, with the present level exceeding the company's free cash flow. By cutting the payout from $8.4 billion annually to $4.2 billion, GE officials forecast that cash needed for dividends will be reduced to 60% to 70% of 2018 free cash flow.
"We understand the importance of this decision to our shareowners and we have not made it lightly," said Chairman and CEO John Flannery in the press release. "We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation."
A cut in the dividend was widely expected, but GE also appeared to be setting a low bar for 2018. In what the company is calling a "reset and stabilize year," guidance was given for organic revenue growth of 0% to 3% and adjusted earnings per share of $1.00 to $1.07, while Wall Street analysts had been expecting $1.14. Flannery, in his fourth month as CEO, no doubt wants to get the bad news out as early as possible as he works to restructure the company to reduce cost and invest in higher-growth businesses, but investors are clearly skeptical that the company's plans will be adequate to revive growth.
Hasbro rumored to be toying with an acquisition bid
Shares of toy companies Mattel and Hasbro rose after The Wall Street Journal reported (requires subscription) Friday night that the two are in discussions about a merger. Mattel stock soared 20.7% and Hasbro jumped 5.9% on the news that Hasbro had recently made a takeover offer for Mattel.
The merger would create a giant toy company with $10 billion in annual sales, and has been a subject of speculation for years. But recent events seem to up the odds for the combination. The bankruptcy of Toys R Us hurt both toymakers, but the timing was particularly bad for Mattel, which had already been struggling to execute a turnaround. The maker of Barbie and American Girls dolls announced dreadful quarterly earnings last month, reporting sharp sales declines and suspending its dividend. At one point, Mattel had the higher valuation of the two, but after several years of the stocks moving in opposite directions, Hasbro now has a market capitalization of twice that of Mattel.
The two companies have not commented on the speculation, and it's far from certain that regulatory authorities would approve the merger of two markets leaders. But investors were clearly willing to bet today that there was validity to the rumor, and that a deal would be a winner for both.
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