Blog 4-General Electric slash their dividends but why?

In October 2018 , General Electric slashed their dividend payments to just a penny per share, but what is a dividend and why does it matter?
A dividend is the distribution of a percentage of the company’s profits or any surplus money to the shareholders. This distribution can be either cash or shares and it is more common that cash is usually the payment the shareholders receive. A dividend is only a percentage of their profits, the rest of the profits are used to reinvest into the company to improve and upgrade in order to raise profits and share prices . General Electric slashing their dividends to just one penny demonstrates the financial position they are currently in, and that position is; in financial trouble. The higher the dividend payment the larger the profit the company has made,  by reducing g the dividend payment to just one penny General electric is demonstrating to the financial world that they are in trouble .This decision to slash dividends will most likely have a significant Impact on the share price of General Electric as investors look to retain their investment before it disappears completely.  During the financial crash of 2008 and 2009 the amount of dividends slashed or stopped completely was at an all time high, in this situation it would have been unwise to sell the dividends as the whole market was under financial stress and therefore would have been highly risky in my opinion to sell dividends. However, in this situation the slashing of dividends is due to General Electric’s financial problems and not a whole market problem, therefore if I was an investors relying on dividend payments I would begin to look elsewhere to invest.
By slashing their dividends they are hoping to retain some cash in order to invest in the company itself as shares are falling. In terms of being a managing director I would take a similar approach, when share prices are falling it is important to intervene as soon  as possible before your company experiences losses it cannot overcome. For investors, particularly retired employees, who use dividends as a source of income, the slashing of dividends will provide great worry. Dividends are attractive to investors because of the lower rate of tax they have, particularly in the US, where dividend tax is capped at 20% whereas income tax can be as high as 37%, this tax rate appeals to retirees who rely on the dividends, as they will ultimately have more money than if they were getting a pension. Lower dividend payments will reduce the cash flow of the investors.
The worst case scenario for General Electric would be to stop paying out dividends altogether, this scenario would occur if they fail to increase their cash flow and share prices continue to fall. In order to prevent this occurring it is important that the CEO has full disclosure, investors need to know whether this slashing of dividends is permanent or just a temporary solution. As a manager I would fully explain to the investors and the public why dividends are being slashed and what the extra cash flow will be used for? Having full disclosure would prevent investors moving their shares and dividends to another company perhaps a rival, this would only further exasperate the problems that General Electric face over the next few months.
Overall, if you were currently holding dividends within General Electric my advice would be to sell, it is clear that General Electric are struggling financially, and it is unlikely that the dividend payments are going to rise from one penny anytime soon.