CASE STUDY 02 Essay Example | Topics and Well Written Essays - 1000 words

CASE STUDY 02 - Essay Example The debt position of the company is more or less the same as that of its peers. 7 Dividend policy forms an integral part of corporate finance. It looks obvious that the company must reward its shareholders by declaring high dividends. But then the question is if the company declares all of its earnings as dividend merely to keep the shareholders happy then this will perhaps retard the future growth prospects. For this reason the companies do not declare all its earnings as dividend but they plough back a certain portion of the earnings in the form of ‘Retained Earnings’. The companies pay a lot of attention to ‘dividend policy’ as a fall may invite the wrath of the shareholders and a rise can come in the way of the growth prospects (Ross, et al., 2008, pp. 590). The dividend payment of FPL Group Inc has been on an upward move for the last ten years. In the year 1984 the company declared a dividend per share of $1.77 that reached the levels of $2.47 in 1993. Unlike the steady rise in the divided the earnings per share (EPS) of the company passed through fluctuations on many occasions but the impact of this was not felt on its dividend payment pattern. In fact in the year 1990 FPL Group incurred a net loss of $391.005 million resulting in a negative EPS of $2.86. But even in this year the company declared a dividend of $2.34. The main incentive of a share issue is that payment of dividend is ‘not obligatory’ i.e. a company pays dividend only when it is able to generate sufficient amount of earnings. But this seems to be inapplicable in the real world as is evident from the case of FPL Group. However it is anticipated by the analysts that the group will either cut dividend or keep it stable at the existing level of $2.48 per share . In 1993 FPL Group maintained a dividend payout ratio of 91% which is the highest as compared to its peers. During this period Duke Power Co. maintained a payout ratio of 68%, Florida