Dividend Policy at FPL

  1. What is the current payout policy at the FPL Group. How does it compare to its peers?
  2. Calculate the FPL’s historical growth rates on dividends and earnings based on Exhibit 4b. How do they compare? How do the fluctuations in these two compare? What could explain this difference or similarity?
  3. Explain the current situation at FPL Group and why they are considering a dividend cut. How is their current competitive position?
  4. Kate Stark is worried about the negative market reaction to the potential news of a dividend cut. Based on what you know about theories related to dividends, why would you expect to see a negative market reaction to the dividend cut? Didn’t Modigliani and Miller Theory suggest that dividends are irrelevant?
  5. Do you believe that FPL group should proceed with the cut? Why or why not?
  6. Suppose that FPL Group does decide to go through with the dividend cut. How should they proceed? A big one-time cut or hold dividend growth steady while letting the earnings grow? Or should they even consider doing something completely different like share repurchase?