Essay on Dividend Policy at Fpl Group
FPL Group Overview:
The FPL Group was Florida’s largest electric utility group and the fourth largest in America. The FPL Group had annual revenues of exceeding $5 billion. Florida Power & Light Company, the main subsidiary of the FPL Group had 3.9 million customer accounts and covered a service area that included six of America’s ten fastest growing metropolitan areas.
a. Summarize the key elements of FPL’s financial policy and compare it with other relevant firms.
We are commenting on FPL’s financial policy from a dividend and capital structure perspective.
FPL has a very high dividend payout ratio of around 90% and has a 47 year streak of dividend increases. FPL’s dividend payout ratio is …show more content…
Around 18% of shares are held by Pension funds that are tax exempt. In the case of individuals who constitute the largest shareholder category, the dividend policy will not really matter as in the absence of dividends, they can always sell shares to realize cash. However, from a tax perspective, generally capital gains are taxed at a rate lower than personal income tax which adds dividends to taxable income. Also, a share repurchase may signal to the investors that the shares are undervalued and hence may see a spurt in share price. It is prudent to sacrifice short term gains for long term stability.
d. What specific changes would you recommend to FPL’s financial policies, and why?
We propose that dividend payouts be reduced immediately. Also, for the current year, we propose that the reduced dividend payouts are made in the form of share repurchases.
The lowering of dividend payouts is proposed considering the fact that FPL has to protect its future earnings in light of anticipated