Friday, January 9, 2009

* GE: Keep Your Dividend or AAA Debt Rating, But Not Both

Is General Electric (GE) the next major company to cut its dividend after holding it flat for a period of time? Last year, in a public statement GE CEO Jeff Immelt said that GE would hold its dividend flat through 2009. Recently, there has been mounting pressure on the company that may make that promise difficult to keep.

Last month, Standard & Poor’s (S&P) lowered its outlook on General Electric’s debt ratings to “negative”. S&P said there was at least a one-in-three chance it would cut GE’s grade from triple-A within the next two years. A rating cut would raise the company’s borrowing costs, diminishing a key advantage GE Capital has had over its competitors.

In a further tightening of the noose, Sterne Agee analyst Nick Heymann said the company likely faces a serious decision - sustain the dividend or the AAA rating. Heymann thought a rating change would not come until the first-quarter or second-quarter financial results are released in April and July, respectively.

Only a precious few companies still carry the AAA debt rating. They include Berkshire Hathaway Inc. (BRK.A), Exxon Mobil Corp (XOM), Johnson & Johnson (JNJ) and Pfizer Inc. (PFE).

For those of us who include dividends from GE stock in our retirement plan, we may want to reexamine our retirement vision.

Disclosure: Long GE, JNJ, PFE.

Tags: [GE]