GE to cancel dividend?

[dex]

Bloomberg.com: Exclusive

It closed at 11.09 on Friday.

I'm waiting for the time when some Dow stocks get under $5 - then I'd buy some; for a very long term hold.

 

[FIRE'd@51]

A more appropriate title for this thread would be "GE to CUT the dividend?". Were you in the newspaper business by any chance?

The article says that the options market is forecasting a 50% cut, and the JPM analyst seems to agree with that projection.

 

[ziggy29]

I think a dividend cut is very much priced into GE already. Perversely, if so a dividend cut might be bullish for GE stockholders assuming the market feels it wouldn't have to be cut again in the future.

 

[Gpond]

I think a dividend cut is very much priced into GE already. Perversely, if so a dividend cut might be bullish for GE stockholders assuming the market feels it wouldn't have to be cut again in the future.

A lot of people are hanging on to it because of the dividend. If GE cuts they will rush into the telecoms.

 

[ziggy29]

A lot of people are hanging on to it because of the dividend. If GE cuts they will rush into the telecoms.

Yes, but I suspect there are also a lot of people who like the stock long-term but don't want to buy it until after the uncertainty of the dividend situation plays itself out. The market is pretty complex and often counterintuitive that way...

 

[Maurice]

i'm waiting for the time when some dow stocks get under $5 - then i'd buy some; for a very long term hold.

bac?

C?

 

[IBWino]

bac?

C?

I think I'd rather invest in lottery tickets.

 

[Running_Man]

Bloomberg.com: Exclusive

It closed at 11.09 on Friday

I'm waiting for the time when some Dow stocks get under $5 - then I'd buy some; for a very long term hold.

I am not buying any GE because I do think GE will be cutting it's dividend and one of my personal rules to keep me out of trouble with stocks is not to buy any stock with a cut in the dividend in the last 10 years.

If GE went under $5 I would be less likely to buy it than now. A good value for the stock is right about in th 9-11 dollar range and there should be no reason for it to fall to $5. With book value in that range and the company still profitable there are just too many valuable assets for someone not to buy gobs of it at this price. Dropping to $5 would mean there is more problems with their loan portfolio than I thought and therefore would become even more of a speculation and less of a value asset play.

 

[FIRE'd@51]

Yes, but I suspect there are also a lot of people who like the stock long-term but don't want to buy it until after the uncertainty of the dividend situation plays itself out. The market is pretty complex and often counterintuitive that way...

Also, if the dividend cut allows GE to secure its AAA rating, I think it could be a net positive for the stock. If the rating is cut first, precipitating a dividend cut, that might be more negative for the stock. Even with a 50% dividend cut, which would probably be a worst-case cut, at a price of 11, GE would still be yielding 5.8% (twice that of the S&P 500).

 

[samclem]

If GE went under $5 I would be less likely to buy it than now. A good value for the stock is right about in th 9-11 dollar range and there should be no reason for it to fall to $5. With book value in that range and the company still profitable there are just too many valuable assets for someone not to buy gobs of it at this price. Dropping to $5 would mean there is more problems with their loan portfolio than I thought and therefore would become even more of a speculation and less of a value asset play.

I don't think I've ever read anything quite like this before.

 

[haha]

I don't think I've ever read anything quite like this before.

This is part of the tension of investing. It's the same as people who were happy to be invested fall of 2007, but are nervous to invest now at lower prices.

Most of us believe in the efficient market hypothesis (or at least I would guess so since the whole rationale for indexing is built on accepting the EMH.)

Doesn't everyone wonder "Is this cheap item a bargain, or are there things that I don't know?"

If we don't wonder that, we should.

Ha

 

[samclem]

I understand the line of reasoning RunningMan used, but it just illustrates many of the "issues" we all face as we value stocks. If Billybob has enough information to state categorically that "Company A is fairly valued at $10 per share" then it is just funny/strange for him to say "But, if it goes to $5 per share, it's not a good value anymore, because there must have been a lot of stuff about it that was unknown to me." Because:
1) Those same "unknowns" could certainly have been there at $10 per share--but Billybob was willing to buy at that price.
2) At $5 per share, Billybob now suspects the market is placing a more accurate value on the stock than Billybob could. How did the market get smarter between $10 and $5 per share?
3) If Billybob believes the market is able to accurately set the value of stocks, why is he even trying to outguess the market by buying individual issues in the first place?

I'm not picking on Running Man. It just struck me as funny.

"Nobody goes to that restaurant anymore. It's too crowded."
-Yogi Berra

 

[FUEGO]

I'm not picking on Running Man. It just struck me as funny.

Nonsensical maybe?

 

[Running_Man]

I believe the logic to be very sound. If I am going to buy individual stocks, I have to make assumptions about what the true value of the company should be. Additionally, you need to be able to protect yourself from a stock falling to zero.

I will give the case of Bank of America. Suppose you had invested your entire retirement on the strength of their dividends. If the company was strong and trading at $50 the stock should not fall by eighty percent in the next year. Indeed if the dividend was stable as I believed, then the stock should trade near the 40-50 dollar mark or perhaps even rise. The fact the stock sinks below that is a gigantic indicator that the logic is faulty and the facts should be looked at closer. Doubling down on margin because the stock is so cheap would not be a good idea.

The most important part of being an individual stock owner in my opinion is not being too proud about a selection and to have anticipations of what may happen to the stock.

IN GE's case they have a very large cache of loans on their books, I am assuming there will be no more than 10-20 million of additional losses. However, I also know from corporate dealings, that if the losses are much greater than that, then accounting folks at GE and management will begin leak word to their family and friends and everyone will stop buying the stock and sell what they have, causing the price to fall further. If GE was actually about done with the writeoffs, insiders would recognize this stop selling and start buying and the price will rise, which I would much prefer. A loss of 60 Billion dollars of market cap is not just a small fluctuation for a company so closely followed as GE.

If GE is going to recover, whether I buy at $5 or $10 will not really matter as the stock should eventually recover back up to the 20's or 30's. If the dividend stays intact or is only cut 50%, I dont' need to make every dollar, but I prefer to make dollars and avoid losses. The tough part is if the stock was bought at $10 and fell to $5 and you sold and subsequently rose to $12, could you not be so prideful that you would admit selling at $5 was wrong and buy back? You need to be able to do that as well as sell at a loss to be successful with individual stocks, because unlike funds they can go to zero. But you need to have this plan when you originally purchase the stock, otherwise you will just flounder with your portfolio.

 

[Dawg52]

This is part of the tension of investing. It's the same as people who were happy to be invested fall of 2007, but are nervous to invest now at lower prices.


Ha

 

[FUEGO]

If GE is going to recover, whether I buy at $5 or $10 will not really matter as the stock should eventually recover back up to the 20's or 30's. If the dividend stays intact or is only cut 50%, I dont' need to make every dollar, but I prefer to make dollars and avoid losses. The tough part is if the stock was bought at $10 and fell to $5 and you sold and subsequently rose to $12, could you not be so prideful that you would admit selling at $5 was wrong and buy back? You need to be able to do that as well as sell at a loss to be successful with individual stocks, because unlike funds they can go to zero. But you need to have this plan when you originally purchase the stock, otherwise you will just flounder with your portfolio.

This doesn't really make sense to me. You say whether you buy at $5 or $10 doesn't really matter to you assuming the stock recovers to 20 or 30. But no matter what price it ends up at, you always have twice as much money if you bought at $5 than if you bought at $10. I wish I could be indifferent to potentially making twice as much money on a given investment.

But then again I don't invest in individual equities, perhaps because I don't spend enough time to understand them.

 

[FinanceDude]

This doesn't really make sense to me. You say whether you buy at $5 or $10 doesn't really matter to you assuming the stock recovers to 20 or 30. But no matter what price it ends up at, you always have twice as much money if you bought at $5 than if you bought at $10. I wish I could be indifferent to potentially making twice as much money on a given investment.

But then again I don't invest in individual equities, perhaps because I don't spend enough time to understand them.

With regards to investing in equities, the reason a fair number of folks get whacked is they "fall in love" with their holdings. An old stockbroker I knew had a favorite saying: "EVERYONE has a BUY discipline, almost NOONE has a SELL discipline"........

He was the king of limit and stop-loss orders........

 

[ziggy29]

This doesn't really make sense to me. You say whether you buy at $5 or $10 doesn't really matter to you assuming the stock recovers to 20 or 30. But no matter what price it ends up at, you always have twice as much money if you bought at $5 than if you bought at $10. I wish I could be indifferent to potentially making twice as much money on a given investment.

This comes down to an old debate in value investing. Everyone from Warren Buffett to Ben Graham and beyond has experienced it.

Value investing isn't generally a "market timing" mechanism where you try to identify the absolute bottom and buy there. Value investing is often a Graham and Dodd-style security analysis to determine what the fair value of a stock is, and if the current market price is below that substantially enough to provide a long-term "margin of safety," it may be purchased by value investors.

Commonly when a stock or a market is depressed, the stock may not only go through that "margin of safety" buy point on the downside, but continue its downward momentum. In other words, value investors of this type usually buy too early rather than too late. But unless one thinks they can time the market and buy at the bottom, or if they are willing to risk the early stages of a sharp rebound in the future and buy *after* the bottom instead of before it, value investing is all about identifying a good long-term bet at a price that's at a discount to its real value and buying it there.

 

[Grep]

My take on some of this is the following:

The "efficient market hypothesis" does not claim (in my opinion) that the markets find the genuine true value of a stock. To stick with this notion is to believe that the markets (or GE) were fairly priced at our recent peaks, and then the country genuinely lost 40% of its value and productivity within the space of a month or so, all the while bouncing around by up to 7+% a day at times.

Some imbue the EMH with a "wisdom of the crowds" mantle, whereby the true value of a stock is found or approached by the markets via a mysterious result of crowd behavior. I can accept a measure of that during rational times, but we’ve all seen how much irrationality exists.

What the EMH does claim (in my opinion) is that the markets settles on its value for a stock efficiently, and that "efficiently" only means quickly and without more than the most transient and inefficient means of exploitation. The rationality or irrationality of the chosen value, and hence its correctness, is irrelevant.

Indeed, I’d go further out on a limb and suggest that the genuine correct value of a company is substantially unknowable. That depends on knowing the entire future revenue stream of the company, its discounted dividends throughout its expected life, etc., and no one can know the future. All that any investor gets to experience is a soupy fog of war, and that limits an investor to forming partially-informed hunches at best.

 

[Running_Man]

This doesn't really make sense to me. You say whether you buy at $5 or $10 doesn't really matter to you assuming the stock recovers to 20 or 30. But no matter what price it ends up at, you always have twice as much money if you bought at $5 than if you bought at $10. I wish I could be indifferent to potentially making twice as much money on a given investment.

But then again I don't invest in individual equities, perhaps because I don't spend enough time to understand them.

I am stating, if the stock falls to $5, I will assume my assumption that GE holds assets valued at $9-$11 and also a future income stream from dividend is much more likely to be incorrect. Therefore I would not buy, if I had not previously at $5. However if the price were to fall to $5 and then the government announced it was buying all GE debt and the price jumped to $12. I would not worry that I did not buy it at $5, since my dividend income is far more assured than I had previously thought.

My point is not that the stock would go to 20 or 30, only that if all the debt issues went away it would work it's way back to that level and the dividend stream would be much more secure. So in that case whether I bought at 5 or 12 would not matter, rather what effects the future of the dividend stream, and the level of payments now and in the future, in relation to other stocks, is far more important to me than any capital gains.

If my goal is to obtain dividends to support a 4 percent withdrawl, isn't the comfort of knowing the government will absorb the losses of my partner's bad investment worth a 50 percent reduction? I would think so, on the other hand if the government decides it should run GE and take ownership of it in exchange for a bailout $5 would be far too much to pay.
For clarity I am will to pay a larger price.

 

[Grep]

Running man, with all due respect I cannot follow your logic at all. It's like going into a car dealership and thinking "I want the car I buy to last a long time. I hope the dealer doesn't offer me too great a discount, or I won't have faith that it will." There's a fundamental disconnect in there somewhere.

 

[tulak]

Running man, with all due respect I cannot follow your logic at all. It's like going into a car dealership and thinking "I want the car I buy to last a long time. I hope the dealer doesn't offer me too great a discount, or I won't have faith that it will." There's a fundamental disconnect in there somewhere.

My take is that it's ok to buy it around $9-10, because I believe that's what I should pay for the stock through whatever reasoning I choose. But if all the sudden the stock is $5, my reasoning must be out of whack so I why would I buy it?

Seems like if the reasoning was good at $9-10, it must be even better at $5. But then again, maybe my reasoning is off...

 

[Running_Man]

The logic would be consistent with you went to a used car dealer and saw he offered it for sale for $10. You thought this was a good car with no engine problems, the parts of the car could easily sell for 9-11 dollars themselves.

Then a few weeks later, after thousands of experieinced professional car mechanics inspected the car, he lowered the price to $5 and none of the car mechanics wanted the car. Indeed none of the car dealers family is even willing to take the car at $5. You are not allowed to actually inspect the car, instead the only information you get is what the dealer cares to tell you. I think the odds are much greater that there is probably an engine issue that you did not realize lowering the selling value of the parts. Perhaps even after purchasing you may find the car won't even run.

By the way this is not my logic in general, but in this specific case for GE. Their big issue is their sick engine and how well it can actually run. Appropriate analogy since GE does make qute a few engines

 

[ziggy29]

Then a few weeks later, after thousands of car mechanics inspected the car, he lowered the price to $5 and none of the car mechanics wanted the car. Indeed none of the car dealers family is even willing to take the car at $5. You are not allowed to actually inspect the car, instead the only information you get is what the dealer cares to tell you.

This is the "uncertainty discount." The stock market does that in spades. It can tolerate actual bad news a LOT more than it can tolerate uncertainty, so the irony is that in this hypothetical car, someone might pay more for a car with a big list of problems (and full disclosure) than for something where no problems are listed, but for which there is no disclosure.

The "uncertainty discount" tends to lead toward assuming the worst when assessing the potential value of an item, being a junker old car or a stock.

 

[FUEGO]

Running man, with all due respect I cannot follow your logic at all. It's like going into a car dealership and thinking "I want the car I buy to last a long time. I hope the dealer doesn't offer me too great a discount, or I won't have faith that it will." There's a fundamental disconnect in there somewhere.

Just don't worry about it. You'll just end up pulling a brain muscle straining to think like I did.

Running man is doing his part to support our economy.