Dividend Policy of Fpl, Inc.

Dividend Policy of FPL, Inc.

Background: FPL Group, is the parent company of Florida Power & Light, Florida’s largest electric utility. FPL has seen consecutive growth patterns since it’s inception due to a heavily regulated market and efficiencies, headed by Chairman Marshall McDonald until 1989. Following his retirement in 1989, FPL experienced a re-structure of its businesses and operations ran by his replacement, James Broadhead.

At FPL, Mr. Broadhead brought forth a commitment to quality and customer service, increased its focus on the utilities industry, expanded capacity, and improved its overall cost position. This later result was the selling off of many of FPL’s non-utilities businesses.

Problem: Due to deregulation in the current utilities market, FPL, had been undergoing many changes within its own organization. With the recent Executive turnover and the resulting sell off of many company assets, FPL had been contemplating the decision to downgrade its dividend payout. This would be the first cut to dividends in close to 50 years. This can particularly be attributed to the ever evolving competitive utilities market.

Analysis: Companies in large sectors usually pay dividends in order to gain shareholders and generate funding. As noted in the case, utilities gain the investor whom looks for a steady payout rather than substantial growth spurts. Advantages to reducing a current dividend policy are such as it reduces the dividend payout ratio decreasing overall risk. Further advantages are that by decreasing its payout ratio may increases its ability to retain revenues and plan for future growth. Conversely, a decreasing ratio could imply instability within the market place, resulting in a decreased stock valuation, resulting in an overall negative market reaction.

Furthermore, despite a history of volatile earnings, FPL has maintained an inappropriately