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    Running Head: The Cutting of Dividends by General Electric 1

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    Aliyan Razzaq
    General Electric announced it would cut its dividend in half to preserve cash and strengthen its balance sheet. CEO John Flannery said GE had paid dividends beyond its free cash flow in previous years and could no longer afford higher payouts. Cutting the dividend will allow GE to invest more in acquisitions, share buybacks, and business growth. Reasons companies typically cut dividends include lack of profits, high debt levels, and changes in capital allocation strategy.

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    Running Head: The Cutting of Dividends by General Electric 1

    Uploaded by

    Aliyan Razzaq
    33 views5 pages
    General Electric announced it would cut its dividend in half to preserve cash and strengthen its balance sheet. CEO John Flannery said GE had paid dividends beyond its free cash flow in previous years and could no longer afford higher payouts. Cutting the dividend will allow GE to invest more in acquisitions, share buybacks, and business growth. Reasons companies typically cut dividends include lack of profits, high debt levels, and changes in capital allocation strategy.

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    General Electric announced it would cut its dividend in half to preserve cash and strengthen its balance sheet. CEO John Flannery said GE had paid dividends beyond its free cash flow in previous years and could no longer afford higher payouts. Cutting the dividend will allow GE to invest more in acquisitions, share buybacks, and business growth. Reasons companies typically cut dividends include lack of profits, high debt levels, and changes in capital allocation strategy.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    33 views5 pages

    Running Head: The Cutting of Dividends by General Electric 1

    Uploaded by

    Aliyan Razzaq
    General Electric announced it would cut its dividend in half to preserve cash and strengthen its balance sheet. CEO John Flannery said GE had paid dividends beyond its free cash flow in previous years and could no longer afford higher payouts. Cutting the dividend will allow GE to invest more in acquisitions, share buybacks, and business growth. Reasons companies typically cut dividends include lack of profits, high debt levels, and changes in capital allocation strategy.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    Running Head: THE CUTTING OF DIVIDENDS BY GENERAL ELECTRIC 1

    The Cutting of Dividends by General Electric

    Name:

    Institutional Affiliation:
    THE CUTTING OF DIVIDENDS BY GENERAL ELECTRIC 2

    The Cutting of Dividends by General Electric

    Description of The Transaction

    According to an article written by Jon Chesto on 13th November 2017 in the Boston

    Globe website, John Flannery, the CEO of General Electric, announced that the firm would cut

    its dividend by half. This took place as the CEO made his presentation to investors, where he

    also added that the company would focus on three major industries, including the manufacture of

    healthcare products, the energy sector, and aviation. He also stated that the company would

    reduce its board of directors as well as divesting some of its businesses, such as transportation

    (Chesto, 2017). Additionally, the CEO stated that the company used to pay dividends that were

    beyond its free cash flow over that past years.

    Reasons for GE Cutting Down its Dividends

    Flannery acknowledged that the decision to cut down on dividends payments was not

    arrived at lightly. One of the reasons that he cited out for cutting dividends was that the firm was

    no longer in a position to offer higher payout. And that this move would be of benefit to

    shareholders as the money would be invested elsewhere as cutting dividends would lead to the

    preservation of more cash (Chesto, 2017). For instance, some money would be utilized in

    acquisitions; another batch would be used in buying back shares while another portion would be

    used to spur the growth of the company.

    How Cutting Dividends Affected GE’s Balance Sheet

    The cutting of the dividends led to General Electric being able to preserve more cash that

    was scheduled to be invested in various sectors of the company. Additionally, the move led to
    THE CUTTING OF DIVIDENDS BY GENERAL ELECTRIC 3

    the strengthening of the firm’s balance sheet due to a reduction in debt levels. This is because

    some of the cash obtained from the decrease in dividends would be used to offset some of the

    firm’s debt.

    Reasons as To Why Companies Cut Dividends

    Many reasons make companies cut their profits. Lack of enough funds to meet dividend

    payment is one of the main reasons as to why firms cut dividends. This is mainly brought about

    by a company experiencing weak financial earnings. Ideally, dividends are derived from the

    profits of a firm, and much decline in dividends can make a company seek additional funds from

    elsewhere, including debt as well as short-term loans. Moreover, the firm can also raise its

    payout rate to meet previous dividend levels. Another reason that makes firms to cut dividends

    may be due to positive motives such as when a firm is preparing for significant acquisition as

    well as stock buyback. Mounting debts can also lead to business cutting dividends (McCullum,

    2018). This is because debts interfere with a firm’s capacity to engage in meaningful activities

    such as investments as the cash available is used in paying debts. Under certain conditions such

    as investment opportunities presented by weathering of a major recession, a firm can also cut its

    dividends.

    The alteration of the capital allocation policy can lead to the reduction of a firm’s

    dividends (McCullum, 2018). Sometimes, companies reduce their dividend as they want to as

    opposed to them being forced to do so by circumstances. For instance, a firm may find it wise to

    invest money in other areas, such as capital expenditures. However, such moves are

    unpredictable, and therefore shareholders require to be provided with specific guidance outlining
    THE CUTTING OF DIVIDENDS BY GENERAL ELECTRIC 4

    allocation decisions. Thus, many companies around the globe cut dividends as a result of both

    positive and negative reasons.


    THE CUTTING OF DIVIDENDS BY GENERAL ELECTRIC 5

    References

    Chesto, J. (2017). General Electric plans job cuts, slash in quarterly dividend. Boston Globe, 24.

    Retrieved from https://www.bostonglobe.com/business/2017/11/13/general-electric-

    plans-slice-quarterly-dividend-half/AZqYqgb6iL7sZ64VvBPmFO/story.html

    McCullum, N. (2018). 3 Reasons Why Companies Cut Their Dividends (With Examples). Sure

    Dividend, 14. Retrieved from https://www.suredividend.com/dividend-cut/

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