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General Electric: A Dividend Cut Would Be A Positive Development, Eventually

September 21, 2018

Summary Points: 

- The bear (i.e., JPMorgan's Stephen Tusa) lowered his price target [again] for General Electric to $10 per share.

- General Electric will need to cut its dividend before the stock finally finds its footing, in my opinion.

- I plan to stay long the stock. What are your plans?

 

On September 20, 2018, General Electric's ($GE) stock was under pressure after a well-known JPMorgan analyst, Stephen Tusa, lowered his price target for the struggling conglomerate from $11 to $10 per share.

 

Mr. Tusa outlined his near- and long-term concerns for GE's Power unit and stated that he is concerned that the company's financial and fundamental risks may not fully be factored into the stock price.

As a long-term shareholder, this downgrade is concerning, especially when you consider the fact that it came from a bear that has consistently been right on his GE calls over the last two years. More importantly, however, Mr. Tusa's investor note instantly brought me back to the thoughts that I outlined in "GE: The Other Shoe Should Drop Soon" - i.e., GE's dividend should either be entirely cut or at least reduced to a more-manageable amount (a dividend yield well-below 2%).

 

If GE cut its dividend, I believe that the stock would face downward pressure but, in my opinion, it would finally be a step in the right direction. At the end of the day, I plan to stay long the stock but prospective investors should seriously consider the main risk factor before putting new money to work in GE.

 

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