General Electric Co., Fairfield, Conn., today announced it will cut its dividend to 10 cents per share, from 31 cents, in the second half of 2009 to “preserve approximately $9 billion” on an annual basis — a move analysts linked to the company’s underfunded post-retirement obligations.
Standard & Poor’s analysts said in a research note that the move “will allow cash balances at GE to reach at least $5 billion by the end of 2009. … We would view a portion of such balances as a partial offset to GE’s now net underfunded post-retirement obligations.” The S&P analysts estimated that “underfunded post-retirement obligations added about $11 billion to debt at year-end 2008.”
“It is for this reason we have always included post-retirement benefits as part of total liabilities,” said Kenneth Hackel, president of money management firm CT Capital, in a separate commentary.
The dividend cut “is the right precautionary action at this time to further strengthen our company for the long term,” GE Chairman and CEO Jeffrey R. Immelt said in a news release. “We currently do not have any plans to raise more equity.”
But GE spokesman Russell Wilkerson said: “We did not discuss what the capital would be used for,” adding that in earlier public comments, GE executives had mentioned there would be no need for additional funding of the pension plan in 2009.
The GE news depressed the stock market late in the session, with the S&P 500 index closing below the level of 740, which technical analysts said was bearish.
