FLORIDA POWER &

LIGHT COMPANY :
DIVIDEND POLICY (A)
GROUP 1

SECTION B

ABOUT THE COMPANY

Third-largest electric utility in the United States

4.7 million customer accounts

FPLs service reliability is better than 99.98 percent

Highly fuel-efficient power plant fleet

The most trusted U.S. electric utility by Market Strategies

International in 2014

ServiceOne Award for outstanding customer service for 10

consecutive years

Approximately 8,900 employees, FPL is a subsidiary of Juno

Beach, Fla.-based NextEra Energy, Inc. (NYSE: NEE).

1925 1970

1980

1985- 1988

1986

1989

o Rising
and
o Florida
Powerofuel
& Increased
o TurkeyoPoint
Deming prize
o Made 4 acquisitions
construction
fuel demand
Light Company
for quality
nuclear plant
o Setup ESI energy
than
o Reduced
formed.costs
kept on
and
Alandco
o Runso as$1
a billionprojected
customer
surveillance
o Japanese Quality
spent on
successful
complaints by
for safety
Control
system
repair
subsidiary
of of
issues. 60%
setup
nuclear plant
o James
FLP
o Increased
o

IMPACT OF DEREGULATION

1978 : Public Utilities Regulatory Policies Act creation of Qualifying

Facilities

1992 : National Energy Policy Act Transmission lines available to

third party

October,1993 : FPL and Florida Municipal Power Agency legal spat

Deregulating Distribution
April,1994 : California Public Utilities Commission announces to begin
retail wheeling in early 1994.

Click icon to add picture

EXHIBIT 1 SHOWING FLOW OF POWER

Here utility c is a competitor to utility A

The figure shows how the local monopoly was loosing grip over transmission power.

DECISIONS UNDER
BROADHEAD ERA

Streamlined quality process reduced number of quality

teams, meetings & reports.

Sold Colonial Penn for $136 million loss along with Telesat
cablevision and Alandco in line for sale.

Budget of $6.6 billion for 5 year expansion plan

Re-engineered structure of the company with the layoffs

resulted in reduction of expense

Sales growth exceeded national average 3.4% annually.

THE DILEMMA
May, 1994 : The most important question confronting
FPL group was the decision whether or not to
decrease their dividend payout ratio in order to
survive in the competitive marketplace.

FLPs POSITION

FPLs Transmission and Power costs far exceed those of their

Competitors

FPLs 1993 Transmission Costs are at the higher range

compared to that of their peer companies. (FPL = $.0019
compared to an industry average of $.0010.)

High transmission costs place FPL at a competitive

disadvantage in a deregulated industry. (EXHIBIT 7)

THE DIVIDEND POLICY

It is our recommendation that FPL reduce its payout ratio to

60% because such a ratio would place them at the lower end
of the range of that of their peer companies, better positioning
FPL for future performance and growth in a recently
deregulated industry.

Additionally, reducing the pay out ratio reduces taxes for their
shareholders.

Buy back shares an alternative to dividend cut.

Make firm less of a target for acquisition

ASSUMPTIONS FOR RECOMMNDATION

The Efficient market hypothesis applies.

Analysts investment rating recommendations are limited to

three options:

Buy

Sell

Hold

Analysts use public information to formulate their

recommendations, and

make every effort to use reliable, comprehensive information.

Signalling exists in the marketplace.

CONCLUSION
Advantages of Reducing Current Dividend Policy:

Reduced payout ratio helps reduce exposure to increased industry risks, such
as market volatility and deregulation. This suggests that FPLs current
dividend policy is too high (<90% in 1993).

Dividends are taxed more than capital gains (almost double); therefore by
reducing or not issuing dividends a firm can save investors money in terms of
the amount of taxes they will pay.

Results in excess cash, which can then be used for future growth through
acquisitions. (Current capacity is close to being maximized.)

Disadvantages of Reducing Current Dividend Policy:

Reducing its dividend would be seen as signalling in the marketplace, resulting

in lowered stock price.

Negative market reaction.

HOW TO INVEST ?

Kate Stark should revise her investment

recommendation from hold to buy,
upgrading her rating because the value
reflected after the decrease in payout ratio
is lower than the intrinsic value of the
stock

THANK YOU