GE "to evaluate" dividend for second half

BOSTON (Reuters) - General Electric Co GE.N will evaluate its planned second-half dividend in light of the slumping global economy, the U.S. conglomerate said on Friday, leaving open the possibility of a cut in the payout.

Jeffrey R. Immelt, chairman and chief executive of General Electric leads a discussion with business leaders at an Ecomagination news conference at Universal Studios in Los Angeles, California May 24, 2007. REUTERS/Fred Prouser

GE shares, which climbed 5.5 percent earlier in the day, gave up most of the gains on the news.

“The board and I will continue to evaluate the company’s dividend level for the second half of 2009 in light of the growing uncertainty in the economy,” Chief Executive Jeff Immelt said in a statement. “Our fundamental priorities will remain keeping the company safe and secure in the current environment and investing in attractive growth opportunities.”

The conglomerate confirmed it would pay a second-quarter dividend of 31 cents per share on April 27 to shareholders of record on February 23.

GE, the world’s largest maker of jet engines and electric turbines, said it has $48 billion in cash on hand and so far this year has raised 64 percent of the money it aims to raise on debt markets.

The company in November said it planned to pay its regular dividend through the end of 2009. It stood by that plan last month when it reported a 44 percent drop in quarterly profit.

But there has been intense investor speculation in recent weeks that the $1.24 per share annual payout could be vulnerable.

Earlier on Friday, J.P. Morgan analyst Stephen Tusa questioned whether it made sense for Fairfield, Connecticut-based GE to continue to pay its regular dividend.

“When it comes to capital allocation, we struggle to understand why the company has decided to pay out 100 percent of industrial free cash flow to shareholders, thereby limiting its potential to make other strategic longer-term investment decisions,” Tusa wrote in a note to clients. He said GE could be better served making acquisitions of companies whose stock prices have been beaten down.

“We think, if a (dividend) cut comes, it’s going to be deep so the company does not have to come back for another cut,” Tusa added. A 50 percent reduction would be “reasonable” to expect, he said.

GE shares traded as high as $11.45 earlier in the day but were up just 10 cents at $10.95 in afternoon trading on the New York Stock Exchange.

Reporting by Scott Malone; Editing by Tim Dobbyn and John Wallace