I’ve been seeing some well-known writers and stock pickers suggest that now is the time to buy General Electric Company (NYSE:GE), or at least start buying for a long-term hold. And maybe they’re right. But for me, I think GE stock could have a bit more downside left before being an outright buy. Let’s look at why.
General Electric CEO and Outlook
CEO John Flannery has proven to be a bold, efficient leader. He’s not afraid to divest, make cuts and do what he needs to do to improve the company’s position. I really like Flannery, especially what he did with GE’s healthcare division before becoming CEO. In fact, he remains very committed to not missing estimates, which is admirable. But can he do it?
He is set to give investors an update in November, a little more than a month from now. Before that, GE will report earnings next Friday. Given all the changes that have come and that are coming, it’s very hard to get a sense of what General Electric will do. No one will care all that much about this past quarter’s results. We want to know what to expect next year. Will management “kitchen sink” their guidance to make for easy hurdles over the next 12 months?
This lack of clarity doesn’t do GE stock price any favors.
GE Stock’s Dividend
Another reason I am leery of GE is the dividend. The dividend yield is attractive at 4.1%. But with a payout ratio north of 100%, dried-up free cash flow and negative operating cash flow, where is this dividend payment going to come from?
General Electric is a conglomerate, so paying the quarterly installment is not an impossible task. Assuming management decides to continue paying the dividend, they surely can’t raise it, or at least, raise it in a meaningful manner. Compare this to a company like Honeywell International Inc. (NYSE:HON), which appears to be firing on all cylinders.
Flannery and his management team have made paying the dividend a priority, but that doesn’t make it a guarantee. I make cutting my lawn a priority too, but it doesn’t always get done when it’s supposed to. Notably, analysts at JPMorgan lowered their price target on GE to $20 and said a dividend cut is increasingly likely.