In retrospect, GE’s 2017 dividend cut may
be seen as a key moment in the future direction
of the US equity market.
Of course, the payout
was cut by a new chief executive keen to
reinvigorate a company that has underperformed
the market for over a decade.
Yet, other chief
executives were no doubt playing close
attention. If the oldest member of the Dow
Jones Industrial average could cut its dividend
for only the third time in history, after the great
depression and financial crisis, then surely that
gives a license to others.
But why would anyone want to cut their
dividend but be scared about it? Bear in mind the
textbooks say that a company’s capital payout
policy does not afect its valuation. And that is
exactly why dividends may be the key to
understanding where the bubbles may lie in the market.