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General Electric Dividend Safety Analysis

November 19, 2013 | About:

General Electric Company (GE) once reigned as the largest company in the world and was a popular choice among dividend seeking investors. GE had paid a dividend since 1899, was a dividend aristocrat with 32 consecutive years of dividend increases, and had not cut its dividend since 1938. In early 2009 though, GE did the unthinkable and cut its quarterly dividend from $0.31 to a mere $0.10. The dividend was cut in order to save $9 billion annually and maintain its AAA credit rating. Although this move ultimately allowed GE to get back on its feet, the dividend cut left a great deal of jaded investors who lost two thirds of their income that came from once reliable GE dividends.

Since the infamous dividend cut GE has gotten back on track with multiple quarterly dividend increases. The dividend has increased nearly 100% to $0.19, an impressive accomplishment, but still significantly below the original $0.31. So can GE win back former income investors who took such a big hit with the dividend cut? Does the blemish on a once exemplary dividend record cause current income investors to pause before initiating a position in GE?

Based on our Dividend Safety scoring system, lets take a look at how safe GE’s current dividend is.


Beyond the dividend cut, the only potential red flag based on our analysis is GE’s high debt to total capital. The company currently has a low free cash flow payout ratio, over one year's worth of the annual dividend in cash on hand, and a spectacular bond rating. The one question investors should ask is, did GE learn from their past blunder and have they taken the right precautions to prevent it from happening again.

It's clear that GE values its credit rating over its dividend consistency and will sacrifice its dividend payment in order to preserve its high rating should the need arise again. Based on an improving economy and strengthened company outlook it's hard to see GE being put in that position anytime in the near future. An upcoming dividend increase is expected to be announced soon as well. With the current financials and recent increases, anything less than a 10% increase will likely be viewed as disappointing.


The 4% Portfolio Retirement Service has made no recommendations on GE.

About the author:

The 4% Portfolio is designed to provide a smarter way for retirees to follow the 4% rule without having to sell a portion of their stock portfolio each year. Our portfolio is based around financially sound corporations spread across multiple industries who reward investors through regular dividend payments. When invested evenly among the stocks in our Portfolio, an investor will yield at least 4% in dividend income each year.

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