General Electric Co. shares rose 2.65% Tuesday after it said it would split into three companies focusing on aviation, healthcare and energy. The split will be a big change for GE shareholders—at least those who have held on through years of stagnant performance.

GE was once widely owned by retail investors and by company insiders and employees, though over the years the shares have become increasingly owned by institutions. Part of its attraction was a healthy cash dividend, but that payment was cut in half in 2017 and dropped...

General Electric Co. shares rose 2.65% Tuesday after it said it would split into three companies focusing on aviation, healthcare and energy. The split will be a big change for GE shareholders—at least those who have held on through years of stagnant performance.

GE was once widely owned by retail investors and by company insiders and employees, though over the years the shares have become increasingly owned by institutions. Part of its attraction was a healthy cash dividend, but that payment was cut in half in 2017 and dropped to a penny the next year. The dividend became eight cents earlier this year when the company did a 1-for-8 reverse stock split.

Current GE shareholders are likely to receive shares of the new energy and healthcare companies as dividends when they spin off; what remains will become the aviation company.

Here is what to know about the decision.

What is GE doing?

GE is going to split into three companies over a period of years, in an effort to focus more sharply on areas where the company sees growth opportunities. GE itself will become an aviation company, focused on making jet engines, and spin off its healthcare and energy businesses.

Why is GE splitting in three?

The company said that “as independently run companies, the businesses will be better positioned to deliver long-term growth and create value for customers, investors, and employees.” The decision follows a period of restructuring, debt reduction and management turnover at the company, whose shares have trailed behind peers and major market indexes in recent years.

When is this going to happen?

GE said it intends to spin off its healthcare business as a stand-alone company in early 2023 and its renewable-energy and power business in early 2024. The company will retain a stake in the healthcare business.

What will happen for people who own GE shares?

The details are yet to be firmed up, but owners of GE shares will likely receive dividends of newly issued shares in the healthcare and energy businesses when those spinoffs take place. GE shares will continue to trade, and all three post-spinoff companies are expected to be publicly traded, investment-grade companies.

Is the decision good news for GE shareholders?

It’s impossible to say, though GE stock has performed poorly recently, which is likely one of the reasons the company made this decision. The stock price, adjusting for a reverse split undertaken early in the tenure of current management, is little changed from where it was when they took over in October 2018, compared with a roughly 60% gain in the S&P 500 index.

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Who owns GE stock?

Like many large companies, General Electric is owned largely by institutional investors such as money managers and pension funds. Institutions held around 77% of GE’s shares this month, according to FactSet data, compared with 77% at Honeywell International Inc. and 80% at Raytheon Technologies Corp.

The proportion of institutional ownership at GE has risen sharply in recent years, from 63% in December 2019, while insider ownership—by executives and directors—has fallen, to a recent 0.6% from 2.6% before the pandemic.

What other companies have tried splitting?

A number of large conglomerates have split up in recent years, often following the rationale GE gave Tuesday of enabling important businesses to focus more closely on their own opportunities. Results have been mixed.

Shares of Siemens AG have risen 64% since the company announced the spinoff of its energy business in May 2020, outpacing the S&P 500’s 56% gain over the same period. Honeywell shares have gained 63% since the company announced the spinoff of its home equipment business in October 2017, below the S&P 500’s 83% gain over that period.

Write to Colin Barr at Colin.Barr@wsj.com