General Electric “absolutely” has to cut its dividend, analyst Jeff Sprague told CNBC on Friday.
The founder of Vertical Research Partners expects a “meaningful cut,” perhaps down to about 50 cents from the current 96 cents.
“If you look back over the last few years, it was fine that the industrial cash flow wasn’t covering the entire dividend because you had GE Capital covering its fair share. But the company has shrunk, GE Capital is gone and it’s just not sustainable for the industrial company to carry that dividend any longer,” Sprague said in an interview with “Power Lunch.“
GE‘s new CEO, John Flannery, is expected to lay out strategic changes and new financial targets at its investor day presentation on Monday. The plans may also include the slashing of that dividend. If that occurred, it would be only the third GE dividend cut since the Great Depression.
However, Sprague doubts eliminating the dividend is on the table.
What he does expect is a plan that leads to GE becoming smaller and more focused.
In a note to investors on Friday, Sprague said, “It is also conceivable that looking out a few years, GE ceases to exist as we know it.”
However, he told CNBC he doesn’t expect the company to break up.
“Mr. Flannery has a tough conundrum here. He does need to simplify and shrink the company a bit. I think that’s a prerequisite here. But to do a full-scale breakup I think is very implausible and could destroy value,” he said.
— Reuters contributed to this report.