Fpl Executive Summary

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Executive Summary Statement of the Problem FPL Group Inc. (FPL) is the largest electric utility company in Flordia. FPL has been operating with consistent growth since 1925, and has paid an increasing dividend for the last 47 years. Recently, the utilities industry has undergone deregulation, allowing consumer to choose their own distributor. With the subsequent increased competition, FPL is considering freezing or reducing its current dividend in order to devote more profit to future growth. As a result of this uncertainty, FPL’s stock price has fallen a significant 6% in one day. Analyst Kate Stark of First Equity Securities had previously issued a hold recommendation based on the assumption that FPL would maintain or slightly increase its dividend. Kate Stark must now decide if she should change her stance, and if so, if her new recommendation is to buy or sell. Discussion Kate Stark and First Equity must make a recommendation to investors based without knowing for certain the course of action FPL will take. Let’s first look at the repercussions of FPL maintaining their 47 year streak, increasing the dividend as usual. This is the most unlikely scenario given that FPL’s current payout ratio is 1.07 while the industry average is 0.8. By tying up its cash flows in dividend payouts, FPL is currently unprepared to face the increased competition that is sure to come from industry deregulation. This would not bode well for future profitability and value to investors. Recommendation Kate Stark should change her previous “hold” recommendation to “sell”. There is compelling evidence that FPL may decrease its dividend payout, and even if it doesn’t the stock price will still drop in the near future. Investors who are bullish on FPL’s future earnings prospects can still choose to buy back their stock after the initial plummet that may occur from a dividend

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