Schenectady County

Shareholders face possibility of cut in GE stock dividend

When her daughter was 8 months old, Elana Fehervari started building a college fund by using baptism
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When her daughter was 8 months old, Elana Fehervari started building a college fund by using baptism money to invest in General Electric Co. stock. The Guilderland resident intended to use the stock’s generous quarterly dividends to provide her daughter with pocket money through her undergraduate years.

Now Fehervari’s daughter is 16 years old with plans to scout colleges this summer. But it is becoming increasingly uncertain how much of GE’s dividend she can count on when classes start.

“That’s not going to be there … I wouldn’t be surprised if they cut it in half,” Fehervari, who is the managing director of Stockade Investment Advisors in Schenectady, said of GE’s dividend.

GE Chairman and Chief Executive Officer Jeff Immelt has spent the past five months assuring shareholders that the company’s $1.24 annual dividend was safe through 2009. But on Friday Immelt changed the tone of his commitment to the stock payouts. He said the company will “evaluate” the dividend’s level for the second half of 2009 “in light of the growing uncertainty in the economy.”

Just two weeks earlier, Immelt said, “The first quarter dividend is done, and we are committed to our plan for $1.24 per share for the year.” But four days after Immelt made that statement on Jan. 23, GE announced Moody’s Investment Service placed the conglomerate’s long-term AAA ratings on review for possible downgrade.

“I definitely noticed they changed their tone,” said John Fox, the director of research and mutual fund co-manager at Fenimore Asset Management in Cobleskill.

Immelt’s perceived backtracking on the dividend has unnerved many local shareholders. Fehervari, who advised clients to prepare for their children’s college expenses by investing in GE stock, received several calls since Friday from people worried about the fate of their dividend checks.

Even the prospect of a cut to GE’s dividend was an unthinkable event among most shareholders a year ago. After GE raised its dividend for 33 consecutive years through 2008, many investors around GE’s birthplace in Schenectady have grown accustomed to the supplemental income their shares provide.

GE in October said the dividend will not increase this year, stoking concerns that the days of generous stock payouts are numbered. At the time, Immelt said, “our board has approved our plan to sustain the GE dividend through 2009.”

The 31 cents per share quarterly dividend approved last week by GE’s board of directors is payable to shareholders through April 27. Assuring shareholders of its ability to make stock payouts, the company said it has $48 billion on hand.

“Jeff [Immelt] has been very clear we have a good amount of cash in possession, and we are going to evaluate how the rest of the year plays out,” said GE spokesman Russell Wilkerson.

GE analysts estimate a GE dividend cut to fall within the 25 percent to 50 percent range. Those projections have area financial consultants warning clients they might have to further diversify their investment portfolios, sell shares or prepare to make significant lifestyle adjustments. A dividend cut would especially weigh heavily on area senior citizens, many of whom based large portions of their retirement funds on GE stock.

“Even if there’s bread on the table, they might have to consider what the impacts will be if they do cut the dividend,” said Dan Weinberg, an economist and chief investment officer for the Empire Asset Management Group in Albany.

Daniel Holland, an analyst for the Morningstar independent investment firm in Chicago, said Immelt’s Friday comment about the dividend’s evaluation suggests directors are “trying to keep their options open.” But “if you do the numbers it makes sense” for GE to cut its dividend.

Jim Denney, the president of Mohawk Asset Management in Glenville, said GE has enough cash on hand to maintain the dividend through 2009. He expects executives to keep their promise that the dividend will not be cut this year. They might say changes to it are expected for 2010 and beyond, with the addendum: “Consider yourself forewarned.”

Categories: Schenectady County

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