Updated from 3:15 p.m. ESTGeneral Electric ( GE - Get Report) will cut its quarterly dividend from 31 cents to 10 cents per share beginning with the third quarter, the company said Friday. The move has been widely expected, as many analysts and investors believe GE needs to preserve capital. It is facing declining revenues in most of its businesses, due to the weak economy. It has also been hurt by heavy reliance on its financial unit, GE Capital. "We recognize the importance of the dividend to our shareholders and the significance of this decision, but we believe it is the right precautionary action at this time to further strengthen our company for the long-term, while still providing an attractive dividend," GE Chairman and CEO Jeff Immelt said in a press release. GE says the move will save it $9 billion annually. The stock rose 1% after the news broke, but more recently was trading down 5.9% to $8.56. Bill Batcheller, director of investment management at Butler, Wick & Co., believes the move is good for GE. "It frees up some capital that they can put to work in a way that's going to enhance shareholder value," Batcheller says. Still, Batcheller had expected the cut, and it has not changed his view that while the stock represents a good buy long-term, it could trade sideways for some time. So while he continues to own GE shares and look for an opening to add to his allocation, he does not see a reason to do so at the moment.
Ratings agency Standard & Poor's issued a note following the GE announcement saying the "substantial dividend reduction should support somewhat greater discretionary cash flow from industrial operations in 2009 than we previously anticipated." However S&P's analysts said their view of the overall economy has worsened since they gave GE's triple-A rating a negative outlook on Dec. 18. Meanwhile, Moody's analyst Richard Lane said that "the reduction in GE's common dividend will address some of the concerns regarding the stress on GE's cash flow. Nonetheless, Moody's is continuing its review of the ratings for possible downgrade."