Updated from 1:07 p.m. EST
General Electric (GE) is preparing to report fourth-quarter earnings Friday against the backdrop of mounting investor worries about the capital levels of U.S. financial companies and concern about the conglomerate's dividend.
GE has said it will not take equity from the government, even as former financial blue chips like Citigroup (C) AIG (AIG) and Bank of America (BAC) come back for second helpings of funds from the $700 million federal bailout approved by Congress in October.
The Dow Jones component also said it will not increase its dividend for the first time in more than 30 years, but it insists it will not cut it.The two issues are most likely intertwined. Taking money from the government would be especially risky for GE, because it could lead to political pressure on its quarterly payout. And cutting its dividend could be especially costly, since GE estimates about 40% of its shareholders are retail investors. Nicholas Heymann, analyst with Sterne Agee, estimates GE raises $4 billion to $5 billion annually through reinvestment of its dividend -- an amount that could be threatened if retail investors lose their dividend. "That will probably start to recede rather than increase as a source of cash flow," Heyman says. This is no doubt in the minds of GE officials when they say they don't need government capital. The original rules of the federal Troubled Asset Relief Program, or TARP, prohibit banks from increasing their dividends, but pressure is growing for banks who received a government investment to make any kind of a payout. The speed with which companies like Citi and BofA went through the first $350 billion of the $700 billion bailout legislation has been shocking to many, leading to a major selloff in equity markets last week.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV