GE (GE) is still knee deep in cleaning up the operational and financial messes of two former ousted CEOs, but could look to restore some form of worthwhile dividend to beleaguered shareholders within 24 months as it moves beyond the ghosts of its past.
At least that is the assessment of Nicholas Heymann, global industry infrastructure co-head at William Blair, who covers GE.
"My guess is that is something we will hear about in November of 2022 in terms of a dividend being meaningfully restored," Heymann told Yahoo Finance Live.
GE famously kicked investors in the teeth yet again (the stock had crashed 65% in the two years prior to the dividend cut, per Yahoo Finance Plus data) on October 30, 2018 by slashing its once hallowed dividend to a penny (where it continues to be today) from 12 cents. The move — triggered by then new CEO Larry Culp — came after another disappointing quarter and an embarrassing $22 billion write-down in the power business.
By cutting the dividend, Culp was not only sending a message that there was a new sheriff in town but also to preserve cash and bolster a challenged balance sheet. The action aimed to save GE $3.9 billion in cash per year.
But a dividend increase of any kind soon would send a new message to investors — that GE has truly turned the corner. And, that it's ready to compete for new longer-term investors with similar industrial companies.
Keep in mind that GE's stock yields a paltry 0.3% — well below the 1.59% Treasury yield (which is no great shakes in terms of relative yield, either). By comparison, comparable industrial companies to GE such as Honeywell and 3M sport dividend yields of about 2% and 3%, respectively.
Why bother investing in GE with that relative yield?
Since the 2018 dividend cut, GE has showed tiny glimmers of financial promise despite the COVID-19 pandemic weighing on its core aviation and energy businesses. The latest arrived on Tuesday within GE's first quarter earnings report as industrial free cash flows were an outflow of $845 million versus an outflow of $2.2 billion a year ago. The company also reiterated its full-year free cash flow guidance of $2.5 billion to $4.5 billion.
Meanwhile, (as Heymann points to) GE continues to shrink the financial black hole of GE Capital and raise cash from asset sales. Just last month, GE said it would combine its GE Capital Aviation Services business with AerCap Holdings in a $30 billion transaction ($24 billion from it in cash). Proceeds from the deal will be used to pay down $30 billion in debt. Once the deal closes (in nine to 12 months), GE said it will have paid down more than $70 billion in debt since 2018.
Hence, some early chatter on the Street of a dividend increase by GE in 2022 as its financial house continues to be cleaned up by Culp. GE's dividend could only go up from a penny, and surely investors who have ridden the stock down the past decade would appreciate the gesture.
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