Can General Electric's Dividend Even Survive?

Amid a sharply rising stock market that has repeatedly reached new all-time record highs, the huge troubles that General Electric (GE 8.28%) has gone through over the past year have stood out even more clearly than they otherwise would. The industrial conglomerate plunged 45% in 2017, and its shares have deteriorated even more so far this year. A combination of poor strategic timing, subpar execution, and a potential controversy surrounding its financials has put General Electric in further jeopardy looking forward.

For dividend investors, General Electric has already been a huge disappointment. It slashed its dividend by 50% in November, adding insult to injury for those who rely on the income that it's historically provided its shareholders. Given its latest woes, GE has some income investors wondering whether it will be able to keep paying even its reduced dividend going forward. Let's take a closer look to see if those concerns are warranted.

Dividend stats on General Electric

Data source: Yahoo! Finance. NM = not meaningful; General Electric has posted negative earnings over the past 12 months.

The big challenge for GE

Investors are already well aware of the reasons why General Electric might have to reduce how much capital it returns to shareholders. CEO John Flannery laid out the case when the company cut its dividend in November, arguing that the business had gotten so massive that it wasn't able to address all of the problems that have arisen in various corners of the business. The proposed solution was to focus on key areas like aviation and healthcare as well as the power and renewable side of its energy exposure. Sales of noncore assets in areas like transportation and lighting are expected to bring in $20 billion, and eventually GE will likely sell off its Baker Hughes (BKR 1.66%) oil and gas subsidiary, in which it still holds a majority stake.

Freeing up capital might sound like an unambiguous positive for the dividend, but General Electric will have plenty of uses for the proceeds of asset sales. Acquisitions to cement its leadership position in its chosen focus areas will require some money, but the greater demand for cash will come simply from the capital-intensive operations that businesses like making jet engines and researching and developing innovative new medical devices takes to succeed.

Image source: General Electric.

Meanwhile, General Electric hasn't given investors the progress they've wanted to see just yet. Losses in the fourth quarter reflected charges related to GE's poorer-performing units, but even after accounting for those issues, earnings have been on the weak side of what the conglomerate had wanted to see.

The latest wildcard came in late February, when General Electric said it would have to restate earnings for 2016 and 2017 to adopt a new accounting standard. GE says those changes will result in reduced profit, and investors haven't been happy about an investigation from the U.S. Securities and Exchange Commission about how the company handles financial reporting for its long-term service agreements. More hits to the bottom line could put even greater pressure on even the current reduced dividend.

General Electric's hope

The big question for General Electric and its dividend is whether its most promising businesses can pick up the slack quickly enough to produce cash flow that can go toward paying shareholders. The prospects for the aviation and healthcare sectors remain strong, and GE plays a leadership role in both industries that the overall company can build on going forward.

The road for GE won't be easy. Aviation has been a hotbed of activity and innovation for years, and other companies have focused far more closely on taking maximum advantage of the aerospace boom in recent years. Similarly, the healthcare space has seen impressive moves forward as companies take advantage of technology that allows for new advances in many different areas. General Electric has the ability to be a leader in those industries, but it can't afford to split its attention in too many directions and still expect to be able to compete effectively in all of them.

Will GE's dividend survive?

It's too early to tell whether General Electric's efforts will pay off. With more than a century of history, GE has endured plenty of difficult episodes, but after more than a decade of less-than-perfect strategic planning, it desperately needs to get itself back on track. GE's decision to reduce its dividend by 50% in one fell swoop late last year suggests that it believed a larger, one-time cut would be more sustainable than a less extreme dividend reduction. Still, if other issues hurt the company, there's no guarantee that General Electric won't decide to divert all of its capital back into its business at least temporarily.