GE's Dividend

High dividends on common stocks are often a sign that business is bad and the dividend is about to be cut. GE reports this morning and the dividend on its common is over 9%. If the stock reports a weak quarter, it will be double digits.

A lot of commentators are wondering whether GE results will be strong enough to protect the dividend. I'm beginning to question the wisdom of that.

GE's return on equity over the last two years has been around 19%. To oversimplify, if you, Mr. Investor, give GE a dollar of equity, they will earn almost 20% on that dollar year in and year out. If you want the dividend protected, you would rather get 9% back on your money than have GE reinvest it in the business at a higher return.

I understand that it doesn't exactly work that way. There are dividend-driven investors and stability of dividends is viewed by may as a "quality" measure.

I'm just not so sure that GE paying out double digits makes sense. I wonder what would happen if Immelt says on the call, "There are so many fantastic investment opportunities across all of our core markets that we are cutting the dividend to ensure utter global industrial/financial domination."