Concerns about a dividend cut weighed on shares of industrial conglomerate General Electric Co. (GE) Tuesday, with the stock trading down as much as 1.4%. Goldman Sachs analyst Joe Ritchie yesterday made a rare call advising clients to buy put options on GE that will increase in value if the shares continue to drop. The analyst foresees GE slashing its dividend in the near future as it looks to simplify its business and streamline accounts under new management following years of “financial engineering.”

Act Before November's Analyst Day

GE’s new CEO, John Flannery, took the helm in August after Jeff Immelt was forced to step down on pressure from activist investors impatient with the company’s turnaround efforts. Earlier this month, GE announced that three key executives, including Chief Financial Officer Jeff Bornstein, were leaving the firm.

“While we expect Mr. Flannery will make changes necessary to position GE better for long-term prosperity (shrink to grow), in the interim, we believe the EPS/FCF reset and the prospect of a dividend cut could weigh on the shares,” wrote Ritchie, recommending that investors buy November put options ahead of GE’s analyst day slated for Nov. 13. Goldman indicates that the options market is pricing in a cut of GE’s payout down from $0.96 and a yield of 4.1% to $0.78 in 2018. The downbeat note echoes the sentiment of analysts at JPMorgan, who last week raised concerns over GE while indicating that a dividend cut is “increasingly likely.”

“We see no quick fix to GE’s problems as years of financial engineering, complex reporting and misaligned incentives are coming to bear,” concluded the Goldman analyst. (See also: Buy Goldman Sachs, Drop GE: Morgan Stanley.)

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