So we heard that GE wasn’t doing that well on the profit front. Due to the operating condition they may lose their AAA credit ratings and investors seems to be very worried about GE cutting its dividend after paying out INCREASING dividends for so many years.
I am intrigued by this piece of news not because i am interested in buying GE or am vested in GE but the fact that people are worried that it would cut its dividend.
When you invest in a dividend company such as GE, you would expect a certain yield for the risk you take in investing this over risk-free asset (treasury bills).
The attractiveness of a dividend company is either its yield above market average yield (e.g. S&P 500 yield) or that it consistently increase its dividend such that you know that your dividend and share price will compound upwards.
I have rant abit last week that i realized its really not always about high yield and the benefits of a aristocrat dividend stock makes it a more worthwhile investment then high yielders. GE definately belongs to the aristocrat group.
But at the end of the day, my take on GE is what the fuck is the point of sustain a dividend if you are able to not cut this year, but cut for subseqent years! This is the problem with public listed companies, they worry about these decision.
If we analyze GE like a business, you look at the current operating condition. You see that this ain’t a normall recession,possibly a depression according to some economist. Capital becomes very much needed to work short term and make investments for long term. Taking away capital through dividend might not be the most sensible thing. I would rather they cut it now, steer it back in this difficult storm and restore the dividends next time. The question on your mind is that, what if they couldn’t
the question one should ask then is:
- How did they end up where they are such that they need to cut it?
- Were they fucking themselves up or was this a systematic problem?
- This is a sad market, do you see them emerging better than their competitors?
These are some of the questions that i failed to look pass the balance sheet that i spend most of my time on now that i look at a company.
One more thing: Losing that AAA rating could have big impact. They would increase their borrowing costs. Due to that interest expenses increase and eats into profits. I see this more important then dividend cut should i be investing in GE.