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Companies like GE that always tout their dividend is a 'red flag,' warns Herb Greenberg

  • Investors should be skeptical of companies like General Electric that "brag" about always beating earnings expectations and raising dividends, Herb Greenberg warns.
  • "For years, people would say, 'they make it by a penny, they're always raising their dividend,'" he says.

Investors should be skeptical of companies like General Electric that "brag" about always beating earnings expectations and raising dividends, Herb Greenberg warned on Monday.

"For years, people would say, 'they make it by a penny, they're always raising their dividend,'" said Greenberg, a partner at Pacific Square Research. "When I see companies bragging about 'We've been raising our dividend for 25 years, 200 quarters.' Whatever number they want to throw out there, ... to me that's a red flag."

"How do they have the confidence to constantly say that?" Greenberg asked on CNBC's "Squawk Alley." "Unless the underlying business is genuinely good."

Greenberg, who tends to look for problems at companies, has been a financial journalist for more than 40 years, working as a commentator at TheStreet.com and senior stocks commentator on CNBC.

GE announced earlier Monday that it is cutting its quarterly dividend in half to help free up capital to fund a turnaround. GE has paid a dividend since 1899 and has only cut it twice: in 1939 and in 2009.

By Chairman and CEO John Flannery announcing all of GE's "reset" plans on Monday, he swallowed "the bitter pill," Greenberg said. "Now he can ignore everything else and move on from here. And grow or go from there."

Greenberg also said the move could give other companies "permission" to do the same.

"I think of [the dividend cut] as more than just GE," Greenberg said. "My goodness, he's cutting the dividend. Who else will say, 'Hey, he's just given me permission to do the same thing?' So, I start thinking about other companies."

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