FPL Group Essay -- GCSE Business Marketing Coursework

DIVIDEND POLICY AT FPL GROUP INC Q.1 DIVIDEND POLICY AT FPL GROUP, INC In 1994 FPL Group, the parent company of Florida Power and Light Company, announced a reduction in its quarterly dividend from $.62 ($2.48 annual) a share to $.42. This was the first-ever dividend cut for a healthy utility, so the company did its best to explain to investors why it had taken such an unusual step. Table 1. ----------------------------------------------------------------------------------------- Year Dividend Earnings Dividend Dividend Earnings Dividend Dividend per share per share payout ratio payout (%) per share payout payout (%) before ratio extraordi- nary items ----------------------------------------------------------------------------------------- 1993 2.47 2.30 1.07 107.39 2.76 0.89 89.49 1992 2.43 2.65 0.92 91.70 2.65 0.92 91.70 1991 2.39 1.48 1.61 161.49 2.66 0.90 89.85 1990 2.34 (2.86) (0.82) (81.82) 2.64 0.89 88.64 1989 2.26 3.12 0.72 72.44 2.99 0.76 75.59 1988 2.18 3.42 0.64 63.74 3.12 0.70 69.87 1987 2.10 3.10 0.68 67.74 2.69 0.78 78.07 1986 2.02 2.90 0.70 69.66 2.90 0.70 69.66 1985 1.94 3.11 0.62 62.38 3.11 0.62 62.38 1984 1.77 2.62 0.68 67.56 2.65 0.67 66.79 Mean 68.23 78.20 ----------------------------------------------------------------------------------------- Analysing dividend policy of FPL Group we could track some major steps, which leads company to that decision. From table 1, the number shows that FPL has paid very high dividend comparing to the earnings. Dividend has been increased every year. Furthermore, from the record, this company has a 47 years history of dividend increases. We can see that in 1990 dividend payout ratio was increased sharply compare to the previous years. Also, we can see that FPL had a loss in 1990, but the company still increased dividend. Furthermore, in 1991 to 1993 dividend payout ratio was significantly high when compare to the historical data. These sharp changes ... ...pected in a rational market, within a month of the announcement, the stock price had more than recovered it's initial loss. Bibliography: 1. M.H. Miller and K. Rock, "Dividend Policy Under Asymmetric Information," Journal of Finance, 40:1031-1052 (September 1985). 2. J. Lintner: "Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes," American Economic Review, 46:97-113(May1956). 3. P. Healy and K. Palepu, "Earnings Information Conveyed by Dividend Initiations and Omissions," Journal of Financial Economics 21 (1988), pp149-175. 4. R. Comment and G. Jarrell, "The Relative Signaling Power of Dutch-Auction and Fixed Price Self-Tender Offers and Open Market Share Repurchases," Journal of Finance 46 (September 1991), pp 1243-1271. 5. S.C. Myers, "The Capital Structure Puzzle," Journal of Finance 39 (July 1984), pp 581-582. 6. M.H. Miller and F. Modigliani: "Dividend Policy, Growth and the Valuation of Shares," Journal of Business, 34:411-433 (October 1961). 7. R.A. Brealey and S.C. Myers, Principles of Corporate Finance, 6th Edition, Irwin McGraw-Hill, Chapter 16.