Dividend Policy at Fpl Group
Subject: Dividend Policy at FPL Group, Inc.
Problem: Should FPL cut dividend? And should Stark revise her investment recommendation? Options: 1) Keep dividend per share growth at 1.65% 2) Dividend per share grows at 1% 3) Keep dividend per share constant at $2.46 4) Cut dividend by 30% and repurchase 10 million shares each year after the cut
Recommendations:
We recommend FPL to cut dividend by 30% in order to free up more cash to facilitate its growth and fight the upcoming competitions, and repurchase 10 million shares each year after the cut to offset the negative signaling impact.
Analysis:
1) Industry Overview
The generation, transmission, and distribution of electricity was classified as the vital public service. Under the regulation by government agency, the monopoly could supply electricity power to public. In Florida, where FPL located, the Florida Public Service commission functioned as a regulatory agency. In 1935, the federal government started involving in electric power industry with the federal power act. This authority was focused on wholesale electricity transactions. Simultaneously, PUHCA ( the Public Utility Holding Company Act) was passed that SEC got a control over utilities other than the generation, transmission, and distribution of electricity.
2) FPL Background
a. Company Overview
FP&L, one of major subsidiaries of FPL Group, was resulted from the consolidation of numerous electric and gas companies. FP&L experienced a profitability problem after spending $1billion for rebuilding a faulty nuclear plant. The company also had operating problems as it frequently had power outages and increased customer complaints about its service. As a solution to the profitability problem, the company decided to diversify its business and to make a company structure for that. FPL made four major acquisitions (Colonial Penn Life Insurance Company, Telesat Cablevision, Inc., CBR Information Group Inc., and Turner Foods
Problem: Should FPL cut dividend? And should Stark revise her investment recommendation? Options: 1) Keep dividend per share growth at 1.65% 2) Dividend per share grows at 1% 3) Keep dividend per share constant at $2.46 4) Cut dividend by 30% and repurchase 10 million shares each year after the cut
Recommendations:
We recommend FPL to cut dividend by 30% in order to free up more cash to facilitate its growth and fight the upcoming competitions, and repurchase 10 million shares each year after the cut to offset the negative signaling impact.
Analysis:
1) Industry Overview
The generation, transmission, and distribution of electricity was classified as the vital public service. Under the regulation by government agency, the monopoly could supply electricity power to public. In Florida, where FPL located, the Florida Public Service commission functioned as a regulatory agency. In 1935, the federal government started involving in electric power industry with the federal power act. This authority was focused on wholesale electricity transactions. Simultaneously, PUHCA ( the Public Utility Holding Company Act) was passed that SEC got a control over utilities other than the generation, transmission, and distribution of electricity.
2) FPL Background
a. Company Overview
FP&L, one of major subsidiaries of FPL Group, was resulted from the consolidation of numerous electric and gas companies. FP&L experienced a profitability problem after spending $1billion for rebuilding a faulty nuclear plant. The company also had operating problems as it frequently had power outages and increased customer complaints about its service. As a solution to the profitability problem, the company decided to diversify its business and to make a company structure for that. FPL made four major acquisitions (Colonial Penn Life Insurance Company, Telesat Cablevision, Inc., CBR Information Group Inc., and Turner Foods