GE hacks dividend 68% to preserve cash

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General Electric Co. today said it would slash its dividend payment to shareholders by 68%, another heavy blow to big and small investors alike who are facing an explosion of dividend cuts by blue-chip companies.

Battered by the recession and in particular by the struggles of its large financial-services business, GE said it would reduce its dividend payout to 10 cents a share per quarter from 31 cents. The move will save the company $9 billion a year.

‘We recognize the importance of the dividend to our shareholders and the significance of this decision, but we believe it is the right precautionary action at this time to further strengthen our company for the long term, while still providing an attractive dividend,’ CEO Jeffrey Immelt said in a statement.

GE investors had been bracing for a cut, given the company’s woes. The stock, which has plunged nearly 50% this year, traded as low as $8.40 today, but pared its loss after the announcement. The shares were off 46 cents to $8.64 at about noon PST.

At 40 cents a share per year, the new dividend still provides an annualized yield of about 4.6% at the stock’s latest price. Immelt termed that a ‘competitive’ payout. But for long-time shareholders who have depended on GE for regular -- and rising -- income, the new dividend rate is a bitter pill.

The dividend cut is the first by GE since 1938, amid the Great Depression.

Within the Standard & Poor’s 500 index, a stunning 34 companies have cut their dividends this year -- a measure of how devastating the economy’s plunge has been for the finances of even America’s biggest companies. The list of giant firms hacking their dividends this month includes Textron Inc., Allstate Corp., Dow Chemical and Macy’s Inc.

GE’s decision may have been critical for retaining its AAA credit rating, by showing debt-rating firms that the company was willing to preserve cash to bolster its finances.

Standard & Poor’s left its AAA rating on GE unchanged after the dividend announcement, but added in a statement that it now expected ‘economic conditions in 2009 to be even more challenging’ than when S&P first warned in December that GE’s rating was at risk.

-- Tom Petruno