On Monday, shares of industrial and infrastructure giant General Electric (GE - Free Report) are falling, down over 4.5% in mid-morning trading after the company announced that it has slashed its dividend in half, as well as other strategic business decisions.
The dividend cut marks only GE’s second since the Great Depression, and the company said shareholders’ payout will now be 12 cents a share, down from 24 cents a share; the cut will become effective in December. GE’s only other dividend cut was back during the Great Recession in 2009.
"We understand the importance of this decision to our shareowners and we have not made it lightly," Chairman and CEO John Flannery said in a statement. "We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation."
GE also unveiled annual profit projections that were well below Wall Street expectations. The company said that 2018 will be a “reset” year, and anticipates profit in the range of $1 and $1.07 per share; analysts were expected $1.15 per share. Additionally, GE is expecting weak free cash flow of roughly $7 billion, about half the company’s normal level.
The company is also making some changes to its board of directors, shrinking it down to 12 members from the current total of 18 by next April. Flannery said there will be three new directors who have “relevant industry experience,” as well as a 15-year term limit and annual elections for board members.
Aside from these announcements, GE is planning some major cost cutting initiatives. While the company has already surpassed its $1 billion in industrial cost cuts this year, GE is planning over $2 billion in cuts next year—which doubles its original target—that goes along with at least $20 billion in divestments over the next year or two years, according to Flannery.
This could include the possible sale of oil and gas company Baker Hughes (BHGE - Free Report) . GE just bought a majority stake in Baker Hughes earlier this year, and even though the combining of each company’s oil and gas business is going smoothly, GE is looking to reduce its exposure to the volatile energy market.
This move would follow the sales of GE’s real estate portfolio, its water business, its unit that makes electrical equipment for utilities, its dishwasher and appliance business, and its media properties NBC and Universal Studios to Comcast (CMCSA - Free Report) .
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