Subject: Investment Recommendation on FPL
FPL is one of the largest utility companies in Florida and the fourth largest in the country. The company has continuously had great financial quarters while offering one of the highest dividend amounts in its industry. 1993 was a record year for FPL with $514 million in net come and dividends amounting for $2.75 per share. With operating efficiency continuing to improve as time goes on, the company looks like it has a positive future.
The main issues facing FPL and its investors are if the company will be raising its dividend amount or keep it at the same level as it currently is. Also how will the competitors in the industry going to affect FPL’s returns depending on if the electricity market in Florida is deregulated. Other issues that face FPL is with regards to the subsidiary holdings that are not involved in electricity. Several of the recent acquisitions have caused large losses for FPL and have hurt the bottom line of the company. With loses of over $250 million since being acquired Colonial Penn has hurt the net income of FPL. Furthermore, the management style that allows for better quality control has seen to be starting to cause some damages and slowing efficiency for the profits of FPL.
The reason that management believes that the current dividend payout is appropriate is because investors in the past have expected high dividend yields coming utility companies because of the high levels of debt that these companies operate at. In addition, cuts in dividends are not common for companies in the utilities sector unless they are in real financial trouble. FPL can’t afford to pay out 90 percent of its earnings because of the need for growth and the entrance of new competitors into the industry. FPL must eventually prepare for changes in it financials and payout ratios, because of increased risk and uncertainty that is involved with deregulation. Another...
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