The funny thing about GE’s dividend cut during the financial crisis is that it actually freed up capital to allow General Electric to recover faster and stronger than it would have if the $0.30 quarterly payout had to be maintained. Additionally, it is the presence of a high-quality executive base (that happens to get paid very well) that is largely responsible for being able to grow profits 8-12% annually despite being a monolith that brings in $146 billion in revenues. We’re talking about lightbulbs, water processing, and engine construction here. This isn’t like Coca-Cola where you can just twiddle your thumb and the annual growth happens automatically due to the ubiquity and brand equity of the product.
Managerial excellence is an important ingredient in GE’s long-term success, and paying people well is important to keep talent. Although it’s currently fashionable to trash GE’s credit division (and with the destruction it … Read the rest of this article!