FPL Group is a publicly owned company in the state of Florida. It deals with the generation, transmission, and distribution of electricity. It has also ventured into other investment opportunities. Since the 20th century, the companies in the United States of America allowed government agencies to regulate them. The Florida state also determined the kind of non-utility businesses that a utility company would enter. FPL acquired other companies so that it can also offer Insurance policies, cable television services, and fruit processing. It also started the real estate business.
FPL group faced many challenges in the year 1994 (Pederson 301). The internal challenge included the staffs’ complaints. Due to the quality control program by the Japanese company, the workload on the staff increased. They had to ensure quality production even under extreme conditions. The company may face staff turnover. The external challenges include the demand that is growing for its services. It can outstrip the company’s capacity (Damodaran 385).
There is also increasing competition in the market. Other companies such as Texas Utilities, Oklahoma G&E, and Houston Industries are among the big competitors. The management is contemplating cutting down the dividend payout or maintaining the current price in the upcoming Annual General Meeting. It might have negative repercussions. Most utility companies never cut down on dividends except in extreme conditions (Damodaran 385). As a result of the dividends cut, Consolidated Edison Company’s price per share dropped. Sierra Pacific Resources also experienced an almost similar repercussion as a result of the dividend cut. The shareholders also sued the company. Therefore, it is a tough decision for the company to make.
The current dividend payout of $2.48 per share is not adequate for the current shareholder. The company should consider increasing the payout. It has been the company’s policy to do so for over ten years (Sharpe 150). It is an anxious moment and the same should apply in the current year. The company has made significant investments in businesses that are generating income (Baker 275). It is performing better financially as compared to its peers. The regulating authorities have given it an improved rating. Therefore, it can increase its debt level to continue its plan of expansion. There has been a gradual increase in income from the utility investments.
There is a need for expansion of the company. The plans would cost the company significant amounts of money (Da Silva, Goergen, and Renneboog 102). The competition is increasing, and there is already an effect on the company’s financial statement. FPL needs to cut down on the increasing interest expense on its long-term and short-term loans. There is an uncertain and more competitive environment now than it was before. It would be prudent to reinvest the company’s income into diversifications and the expansion of the utility subsidiaries.
The appropriate decision for the shareholders to make in the case of the FPL group is to hold. Even though the market is turbulent, there are chances that the strategic decision would enable the company to improve gradually. The utility industry is the best place to invest because of the usual and expected returns on investment.
Each year, there has been a significant increase in demand for utility services. The population of Florida is also gradually increasing (Hast 97). Therefore, as the demand goes up, so does the business. The increased business opportunities would catapult the increase in dividends. Even if FPL group does not increase its dividend payout in the current financial year, the increase in the coming years would be higher and regular.
Works Cited
Baker, H. Kent. Dividends and Dividend Policy, Hoboken, New Jersey: John Wiley, 2009. Print.
Da Silva, Luis Correia, Marc Goergen, and Luc Renneboog. Dividend Policy and Corporate Governance, Oxford: Oxford University Press, 2004. Print.
Damodaran, Aswath. Investment Philosophies, Hoboken, New Jersey: Wiley, 2012. Print.
Hast, Adele. International Directory of Company Histories, Chicago: St. James Press, 2007. Print.
Pederson, Jay P. International Directory of Company Histories, Detroit, Michigan: St. James Press, 2010. Print.
Sharpe, William F. Investors and Markets, Princeton, N.J.: Princeton University Press, 2008. Print.