Case For Exam Dividend Policy
Dividend
Policy
FPL Group Inc
Financial Management - I
Group 11
Kinnari 20121026 | Krutika P 20121028 | Tushar 20121058 | Vijay 20121062
Agenda
Case Background
Decision Rationale
Financial Analysis
Reflection and conclusion
Financial Management – I | Dividend Policy at FPL Group Inc.
Case Backgound
Synopsis
Current Situation
Case
Description
Recommendation
Competitive
Position
Financial Management – I | Dividend Policy at FPL Group Inc.
Background behind FPL’s decision in dividend
In 1992, federal regulators introduced wholesale wheeling and, by mid-1994, state regulators in 23 states are considering retail wheeling proposals.
When the California regulators released their retail wheeling proposal, the three largest utilities in the state lost a combined
$1.8 billion in market value.
S&P Electric Utilities Index has declined more than 20% since
September 1993.
While much of this can be attributed to the increase in interest rates, some portion of the decline is due to the effects of deregulation.
Financial Management – I | Dividend Policy at FPL Group Inc.
Possible Alternatives
Increase dividend
Remain the same! ($2.48 per share)
Cut dividend
Financial Management – I | Dividend Policy at FPL Group Inc.
Key Assumptions
Efficient Market Hypothesis apply
Analysts’ investment rating are limited to 3 options
Buy
Sell
Hold
Signaling exists in market place
Financial Management – I | Dividend Policy at FPL Group Inc.
Decision Rationale
Why would FPL want to increase dividend
Meet Market expectation and legacy of increasing dividends since last 47 years
Signal good earnings perspective and better future investments to face the growing competition out of deregulation Financial Management – I | Dividend Policy at FPL Group Inc.
Why would FPL want to decrease dividend
To signal worsening industry prospect.
Increased competition leads to increased volatility in earnings. Other concerns than signaling. Taxes,
Policy
FPL Group Inc
Financial Management - I
Group 11
Kinnari 20121026 | Krutika P 20121028 | Tushar 20121058 | Vijay 20121062
Agenda
Case Background
Decision Rationale
Financial Analysis
Reflection and conclusion
Financial Management – I | Dividend Policy at FPL Group Inc.
Case Backgound
Synopsis
Current Situation
Case
Description
Recommendation
Competitive
Position
Financial Management – I | Dividend Policy at FPL Group Inc.
Background behind FPL’s decision in dividend
In 1992, federal regulators introduced wholesale wheeling and, by mid-1994, state regulators in 23 states are considering retail wheeling proposals.
When the California regulators released their retail wheeling proposal, the three largest utilities in the state lost a combined
$1.8 billion in market value.
S&P Electric Utilities Index has declined more than 20% since
September 1993.
While much of this can be attributed to the increase in interest rates, some portion of the decline is due to the effects of deregulation.
Financial Management – I | Dividend Policy at FPL Group Inc.
Possible Alternatives
Increase dividend
Remain the same! ($2.48 per share)
Cut dividend
Financial Management – I | Dividend Policy at FPL Group Inc.
Key Assumptions
Efficient Market Hypothesis apply
Analysts’ investment rating are limited to 3 options
Buy
Sell
Hold
Signaling exists in market place
Financial Management – I | Dividend Policy at FPL Group Inc.
Decision Rationale
Why would FPL want to increase dividend
Meet Market expectation and legacy of increasing dividends since last 47 years
Signal good earnings perspective and better future investments to face the growing competition out of deregulation Financial Management – I | Dividend Policy at FPL Group Inc.
Why would FPL want to decrease dividend
To signal worsening industry prospect.
Increased competition leads to increased volatility in earnings. Other concerns than signaling. Taxes,