General Electric Company (NYSE:GE) has been struggling to generate enough cash flow to support its capital requirements, dividend payments, and debt reduction. The company slashed its dividends in half last year and investors are not sure about the future of GE’s dividend policy.
Traders concerns increased again, following CEO John Flannery declined to comment on whether the company would cut the dividend again in 2019.
Debt Crisis is Intensifying
GE is under a huge debt burden of $136 billion. Also, the company is relying on external sources to fulfill their capital requirements and dividend payments. It recently indicated that they would use debt to pay $6 billion of annual pension payments in 2018. Credit rating agencies are also showing their concerns over GE’s cash position.
Moody’s recently downgraded GE credit rating to negative, citing liquidity risk for the company in the coming days.
Its free cash flows were standing close to negative $500 million in the first quarter, which isn’t sufficient to meet its dividend payments and capital requirements. Its quarterly dividend payments stand at around $1 billion despite a dividend cut of 50% at the beginning of the year.
The company believes that their strategy of raising $20 billion through asset sales would be enough to cover their capital needs. “We are making significant progress on the $20 billion of dispositions planned for 2018 & 2019. There is no change to our framework for 2018.” John Flannery said.
But, JP Morgan Thinks Differently
JP Morgan Stephen Tusa believes GE needs billions of dollars to fulfill its commitments; the firm thinks GE requires $32 billion to stabilize its liquidity position.
The analyst said, “Even after transportation, we see the need for roughly $32B in capital to mathematically hit 2.5x leverage, well more than the initial $20B ‘in value’ investors had been treating as a silver bullet, and a target GE is missing.”
The firm says they need to make further dividend cuts and more aggressive approach to reinforcing its capital base.
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