Fpl's Dividend Decision
Topics: Investment, Dividend, Stock / Pages: 3 (597 words) / Published: Jan 9th, 2010

Major issues of FPL in 1994:

- Negotiation between FPL and FERC (Federal Energy Regulatory Commission) to settle the lawsuit against FPL for changing excessive rates and denying fair access to its transmission system.
- Lower investment rate due to the fact that FPL probably does not raise dividends as discussed
- Suggestion of dividend cuts by FPL’s managers
- FPL’s stock price has fallen by 19.6% while the S&P index has decreased by 22.1%
- Rising interest rate and increasing competition in electric industry
From investors’ perspective, the current payout ratio is appropriate to some extent:
- FPL’s current payout ration = cash dividend/net income = 461693/248749 = 107.7%. According to the exhibit 9, FPL has the highest payout ratio in comparison to other electric utilities in the same industry.
- For institutional investors who hold 36.9% of FPL’s total common stocks, this payout ratio may be appropriate because they likely prefers high payout ratio in seeking for high earnings from their investment. If FPL tries to maintain this ratio, it can satisfy those small investors but it has to increase this ration over time to satisfy these investors’ expectation.
- For individual investors who hold 51.9% of FPL’s total common stocks, the payout ration has little meaning because they can use homemade dividend strategy to obtain capital gains rather than receive cash dividends due to higher taxes imposed on dividends. Furthermore, they do not need dividends to convert shares to cash. FPL’s decision to cut payout ration does not really affect the value of these individual investors.
- In my opinion, FPL currently maintains an inappropriate payout ration. Given the situation that the new regulation will be soon implemented, FPL will face strong competition not only from Florida but also from all other possible states. FPL can not protect itself by restricting access to its transmission system since it was sued for doing so. To prepare for competition and

Bibliography: http://amedemic-case-studies.blogspot.com/search?updated-min=2006-01-01T00:00:00-08:00&updated-max=2007-01-01T00:00:00-08:00&max-results=29

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