GE's dividend cut misses the mark

Since late last year, when the market began to become concerned that GE (GE) might have to cut its dividend, the company has made a mighty effort to convince investors that the move would not be necessary. The firm began to hedge on that about a month ago.

Today, GE confirmed fears that trouble at its financial services operation would undermine the company's balance sheet and cash flow as it cut its pay-out from $0.31 to $0.10 a share. According toThe Wall Street Journal, the move will save GE $9 billion a year.

The conglomerate might have hoped to see some benefit, at least short term, from the action. But that did not happen. Moody's said that it still might downgrade the company's debt. GE''s "Triple-A" rating gives it unprecedented access to capital at relatively low interest. Analysts believed that a dividend cut might improve cash flow enough that GE's rating could stay intact. As it turns out, that may not be true.

The stock market was not more impressed with GE's decision than Moody's was. The stock sold off 6.5% and hit a new 52-week low at $8.40.

The action won't make the most significant concern about GE go away. The firm may still face huge credit defaults on the business and consumer portfolios held by its financial services operation. As the recession deepens, the risk to GE's earnings become acute.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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