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An Update on FPL's Dividend Policy

Overview

In this chapter's opening vignette we discuss FPL's decision to change its dividend payout policy. As you recall, in the mid 1990s the company announced that it was cutting its dividend from $0.62 a share to $0.42 a share. The company also announced that it was setting a dividend payout target at around 60-65 percent - in previous years this ratio had occasionally exceeded 90 percent.

It is interesting to find out what has happened to FPL's dividend policy since the time of this announcement. We can address this issue by relying on the data that is provided to you in Thomson Analytics.

Discussion Questions

1. To get information about FPL's dividend policy, enter its ticker and select OVERVIEW > FULL REPORTS > THOMSON FULL REPORTS > FULL COMPANY REPORT. Click on the full company report for FPL to the "Annual Historical Data" section. What has happened to FPL's dividend per share, dividend yield, and dividend payout over the past five years? Do you have any explanations?

2. Compare this to other firms in the same industry. To see how FPL stacks up against its peers, select PEERS > OVERVIEWS > PER SHARE DATA to get FPL's peers' last annual dividends. Accessing PEER > OVERVIEWS > ABSOLUTE RANKINGS will give their payout ratios, while VALUATION COMPARISON shows their dividend yields. Has FPL behaved differently or have there been industry-wide shifts?

3. Refer back to the FULL COMPANY REPORT used in question 1. Manually, plot earnings and dividends over time. In the text we point out that dividends are often much more stable than earnings. Do you see a similar pattern for FPL?

4. In the "Interim Financial Data" section of the FULL COMPANY REPORT, identify the dividend declared date, ex date, and pay date. Explain the significance of these dates. Go back to "Overview", and access the "Interactive Price Chart". Can you observe price shifts around these dates?

5. Investors are more concerned with future dividends than historical dividends, so go to EARNINGS/ESTIMATES and scroll down to the "Consensus Estimates" section. Click on the "Available Measures" menu to toggle between Earnings per share and Dividends per share. How do analysts expect FPL's payout policy to behave in the future?

6. Refer back to the FULL COMPANY REPORT and click on scroll down to the "5 Yr Annual Balance Sheet" section. Does it appear that FPL has repurchasing any stock or have they been issuing new stock?

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