Dividend Policy At Fpl Group, Inc Essay

3249 WordsFeb 7, 201213 Pages
Dividend Policy at FPL Group, Inc. (Case Report) Subject: FPL Group Dividend Policy Problem: Certain industry changes and market announcements have indicated that FPL will change its dividend policy. An Analyst First Equity Securities Corporation, Kate Stark, is unsure to which recommendation to make to clients as the firm could perform a number of different actions in regards to dividend policy. Alternatives: 1. Recommend Hold the Stock 2. Recommend Sell the Stock 3. Recommend Buy the Stock (See appendix 1 for discussion for alternatives) Recommendation: Based on the 3 scenario dividend discount model and Free Cash Flow Equity Model we conducted it is highly probable that FPL’s share price is going to fall. Since the firm is going to be subjected to increased competition, and the price of shares in the industry is sensitive to the dividend payout policy. Therefore, we Ms. Stark to inform her clients of this and recommend sell. Then rebuy the stock after the price has fallen. If possible she should tell investors to short sell the shares to get benefit of the fall in the price. The price is going to fall irrespective of changes in the dividend policy and will fall more if the dividend payout is reduced. Analysis Introduction & Current Situation The Florida Power & Light Company, FPL Group’s largest subsidiary, holds one of the lowest retention ratios in the industry; the firm’s dividend payout is extremely high at around 90% at year close. Whilst this makes shareholders happy and boosts stock price some external issues and changes in competitive dynamics is making the firm release statements about a change in dividend policy. This puts up a red flag for Ms. Kate Stark of First Equity Securities Corporation, and brings three possible firm actions the she could take into consideration. Industry Environment The deregulation

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