Dividend Policy at Fpl Group Essay

When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends

The second option available for FPL was to slower the dividend growth to 1%. Analysis of exhibit TN-4 here shows that dividends grow from $465.61 million in 1994 to $484.52 million in 1998. The resulting negative net cash flows are still eminent in years 1994-1996 but become positive in 1997 with $121 million and 1998 with $116 million. The payout ratio is this option does become closer to the desired 80% by 1998 when the payout ratio is 81%

Dividend Policy | -Pay out dividend to shareholders in profitable period | -100% plowback to reinvest in the business |

With deregulation and possibility of increased competition, high interest rates, investors should look at the cost efficiency of FPL and its diversification. The fact that the company pursued

The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.

Indeed, FPL’s management may see this as an opportunity to gain more share in the Industrial and Commercial segments, making it a positive change, at least in the short-term.

a. What are Q’s EPS and dividends next year? How will EPS and dividends grow in years 2, 3, 4, and 5 and subsequent years?

Dividends are subjected to higher tax rate compare to capital gain increased due to share buy-back. This discourages shareholders from desire to receive high dividends in place of higher capital gain as share values increase. A comparison is made below between the proposed capital structure and dividend policy.

A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.

While conducting the analysis of EMI group’s dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who holds most of our outstanding shares. High tax-bracket individuals would prefer zero-to-low dividend payout to save on taxes. Low tax-bracket individuals would prefer a low-to-medium dividend payout, which gives them additional income while helping them save on taxes. An investing corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for EMI group, we must first

The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.

The first objection is related to the fact that this is a totally new approach concerning dividend policy, and nobody can predict what is going to happen. We consider that this may have positive effects on share prices, especially taking in consideration that it will stabilise the market price of the company.

There are many theoretical and empirical results describing the decisions companies make in this area. At the same time, however, there is no generally accepted model describing payout policy. Moreover, empirical findings are often contradictory or difficult to interpret in light of the theory. In their seminal paper, Miller and Modigliani (1961) showed that under certain assumptions dividends are irrelevant; all that matters is the firm’s investment opportunities. Miller and Modigliani considered the case of perfect capital markets (no transaction costs or tax differentials, no pricing power for any of the participants, no information asymmetries or costs), rational behaviour (more wealth being preferred to less, indifference between cash payments and share value increases) and perfect certainty (future investments and profits are given). In real life, however, people seem to care about dividends. Lintner.s (1956) classical study on dividend policy suggests that dividends represent the primary and active decision variable in most situations. Lintner suggests a model of partial adjustment to a given payout rate.

The results of the regression did not show a significant relationship between the dividend policy and ownership duality. So, we cannot establish a relationship between dividend policy and ownership duality; hypothesis H2, in this case, is not validated. Concerning foreign ownership, the results indicate a positive and significant relationship between the level of the presence of foreign shareholders and the level of dividend distribution. The relationship between the two variables is significant at the 5% level. In other words, the more the level of foreign ownership increases, the more the level of distribution of dividends increases. Consequently, Hypothesis H3 is supported.

When deciding on changes to dividend pay-out ratio, there are several factors which must be considered. This piece looks at the different underlying theories which affect management’s decision, before looking at what policy would be considered best for FPL and how to implement a change.