Essay on Dividend Policy at Fpl Group, Inc.

2955 Words Feb 13th, 2007 12 Pages
FPL – An Overview FPL Group, Inc. is Florida's largest electric utility company. In 1925, through the consolidation of numerous electric and gas companies, they formed Florida Power & Light Company (FP&L). FP&L grew steadily over the next 50 years until rising fuel costs, operating issues, and construction costs began to decrease profitability. In the mid-1980s, FPL diversified with four major acquisitions - Colonial Penn Life Insurance Company, Telesat Cablevision, Inc., CBR Information Group Inc., and Turner Foods Corporation- in order to minimize the potential risk within the utilities industry. To address problems in operations, FPL began a rigorous program of Japanese-inspired quality control. Management succeeded in …show more content…
Thus, they are subject to any price sensitivity in the power market.
4) High Payout Ratio The payout ratio interprets the amount of earnings paid out in dividends from earnings available to shareholders. Currently, FPL has a payout ratio of 90%. While it is true that firms in the utilities industry typically have a high payout ratio, FPL's ratio is abnormally high. Given the possibility of expansion due to increased competition, FPL cannot afford to carry on such a high payout ratio. By decreasing the payout ratio, FPL can use a higher portion of earnings to encourage growth and safeguard against competition.
Dividend Policy
Firms pay dividends for several reasons; however the main reason is to reward shareholders for investing in the firm. Dividends send a signal to current and future investors that the company is financially stable. It also tells investors that they are sharing in the firm's profits, and encourages them to continue with their investment. There have been several debates regarding the benefits of consistent dividends for the investor. No one theory is conclusive concerning whether or not dividends should be paid, however they all agree that the company's dividend policy should be based upon the shareholder's preference.
Dividend Policy Theories

When discussing whether or not to pay dividends, theorists have

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