Please ensure Javascript is enabled for purposes of website accessibility

Why General Electric Stock Just Dropped Another 7.5%

By Rich Smith - Nov 12, 2018 at 3:51PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

GE's CEO just stated the obvious -- and it terrified investors.

What happened

Shares of General Electric (GE 4.70%) stock are tumbling again, down 7.5% as of 2:55 p.m. EST -- and GE has only itself to blame.

This morning, GE CEO Larry Culp gave a television interview  to CNBC; in the course of which, he said it was "urgent" the company pay down its debt -- and indeed, that "we have no higher priority right now than bringing leverage levels down."

Pirate says do you accept my strategic recommendation now?

GE needs to toss debt overboard, and dividend investors may just have to walk the plank. Image source: Getty Images.

So what

Over the past five years, General Electric (GE 4.70%) has in fact succeeded in cutting its debt load by more than half, according to data from S&P Global Market Intelligence. Problem is, it didn't do this by earning lots of money with which to pay down debt. (GE actually lost more than $31 billion over the last 12 months).

Another problem -- GE still has more than $97 billion in long-term debt on its books.

Now what

To deal with this debt load, Culp says GE intends to sell a lot of assets to raise cash that can be used to pay off debt, and on the surface at least, that sounds like a good plan. The problem, of course, is that the more "assets" (i.e. businesses and subsidiaries) that GE sells today, the fewer "assets" it will have left with which to make sales, earn profits, and grow in the future.

With fewer levers to pull to get GE's business going again, there seems less and less hope that it will be able to revive its dividend, which has now been cut to just one single penny per share, per quarter. To the contrary, it's unlikely GE is giving the idea of dividend hikes much thought at all. Remember: The company has "no higher priority right now" than paying down debt.

That doesn't leave much room to think about growing profits, or raising dividends.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
GE
$67.08 (4.70%) $3.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.