Fpl Case

FUTRONICS Inc. is a private company located in Lexington mainly categorized for modems, monitors, disk drives and terminals. It is moreover in to sales and services. This case is about the replacement of Futronics’s central office stores by an outside service provider. In this case supply management manager have an opportunity for investigating selected outsourcing in-house services.

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.

Problem: On May 5, 1994 the utilities analyst of Merrill Lynch downgraded FPL Group Inc. due to an expectation of adjustment in dividend payments. The report also acknowledged the probability of a cut in the dividend. Kate Stark of First Equity Securities Corporation analyzes the situation and she has to predict what is going to happen. This investment alert was published dropped the stock price by 6% on the same day. 3 weeks ago Kate Stark has recommended a “hold” position for FPL Group. With the new report should she change her recommendation?

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

From the recent case data, ExxonMobil has not acted irresponsibility in pricing its gasoline products. Outside of the grocery industry, I have not heard of any business segments surviving on less than a 5% profit margin. In reading that ExxonMobil reported only a net profit of 8.5%3, it is difficult to state that the firm over priced its products to reap abnormal profits. Although Mr. Lee Raymond’s $400 million retirement seems grossly out of proportion in utilitarian terms, adding these funds back into the firm’s bottom line would not change the profit results. With profit margins of less than 10%, it is unlikely that ExxonMobil would be able to keep the price of gasoline fixed if sweet crude oil were to increase from $80 per barrel to $88. This 10% increase in raw material cost would have to be passed through to the customer in the form of higher prices for the firm to survive.

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

Not only would this benefit the company, but would also benefit the stakeholders who just received the additional 50% stock dividend that CPK issued.

A high dividend payout policy reduces the rate of growth in earnings, g = br. For any rate of return on investment (r), the larger the payout ratio (the smaller the value of b), the slower the rate of growth. Lumber firms in general (Georgia Atlantic is an exception) have approximately a 35 percent payout ratio. Since the other companies have, on average, been growing at a rate of about 7 percent annually over the last twenty years, versus an average growth rate of 2.47 percent for Georgia Atlantic, it is clear that Georgia Atlantic's ROE on investment is substantially below the industry average.

FPL has a very high dividend payout ratio of around 90% and has a 47 year streak of dividend increases. FPL’s dividend payout ratio is

By cutting dividends, FPL can react better to future threats. After an initial panic selling triggered by the news shock (FPL never cut its dividend in the past 47 years), investors will process the new information realized that the dividend cut is balanced by an increased growth rate in the future. To justify the HOLD recommendation on the

Investors often look at utility companies for their high dividend yields and growth over time. Although a high dividend is something sought by investors in utility companies, a high payout ratio can represent a negative signal. The high FPL’s payout ratio gives the company little room for error; if earnings would be adversely impacted in the future the company would be faced with the possibility of not being able to pay the dividend.

Based on the financing needs, as above dividends would be additional stretch on company finances

Using G-STIC framework identify goals, strategy (target market(s) and value proposition), 5Cs+3Vs, and tactics for the First Class Trading (FCT).

Paying dividends will reduce the available funds of the company but is a way to increase shareholder value. Increasing or decreasing of DPR spells out the standing of the company to its shareholders. Reduction or not giving dividends for a period will reduce AFN but will mean that the company is struggling to provide enough profit. Shareholders may see this as a signal that further investments for the company are riskier.

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.