Friday, February 27, 2009

GE Pay Cut for Shareholders But Not Management & Kicking Sand in the Wound/ Citi: Equity and Trust Preferred Stocks

GE has been brought to its knees, cutting its dividend by 68%.  I did not see in the release announcing this deprivation to its shareholders that management was taking a pay cut.  Yahoo! Finance  GE did say that ten cents was attractive to shareholders, maybe for those who bought all of their shares at a 1994 price.  While I expected the cut, I will vote against any Board that does not demand a pay cut by management after announcing a significant dividend cut.  I will continue voting against the Board until the dividend is restored to its original level or managements'  pay is cut by at least 10%.  I still expect the rating agencies to take away the AAA rating later this year.  S & P still has GE on negative outlook after this announcement.  Reuters

When stating in an earlier post that I viewed a dividend cut as very likely,  I also predicted that it would take three years to restore it back to the existing level. BUY 50 BDNPRC/Home Sales/Kudlow's Creation of His Own Reality/LQD & Correction in Bond Prices/   When GE said that its new dividend of just 10 cents was "competitive", this indicates to me a change in emphasis and makes it likely in my view that far more than 3 years will pass before it is restored to 31 cents, maybe as many as seven years. When the price declines to 1994 levels, and then the management says a 68% reduction is "attractive" and a "competitive" dividend, as a result of the tremendous fall in the share price,  then they are merely kicking sands in their shareholders' wound.  I would expect GE shares to trend down to below $5.  While expected, these dividend cuts are just ghastly for individual shareholders who need to start expressing their displeasure when voting and should take the time to vote in the upcoming annual meetings of these companies who slash their dividends and maintain executive pay at extraordinarily high levels. 

I am not a holder of any preferred stock in Citigroup.  The Trust Preferred shares are rallying today so it is unclear to me whether their dividends are being deferred or whether it is just the equity preferred dividends that have been eliminated so far.  It does not make any difference to me because I have no intent on buying either the equity or trust preferred so I am not going to make an effort to resolve that issue.  It is just unclear to me reading the WSJ story. 

For the time being I am keeping my prediction of DJIA 6400 but I am more likely to lower that estimate than raise it. 

All of these dividend cuts by large American companies  whose shares were bought by individuals for their secure dividends will have a very negative psychological impact.  These huge dividend cuts will even result in a higher budget deficit as individuals lose dividend income and that will be aggravated by substantial decreases in  interest income as well.   

No comments:

Post a Comment