Kate Stark, a Wall Street analyst, has just learned that FPL Group (the holding company for Florida Power and Light, the country's fourth largest utility) may decide to freeze its upcoming dividend at $2.48 per share at the company's upcoming annual meeting. The decision not to increase dividends would end a 47-year streak of annual dividend increases. In response the the news, FPL's stock price is down 6%. 

 

Question 1: Based on the financial projections reported in Exhibit 6, can FPL afford to increase dividends by 1% per year over the next 5 years? 

 Question 2: As Kate Stark, what would you recommend regarding investment in FPL's stock? Buy, Sell or Hold? 

 Question 3: Why? Briefly justify your recommendation.

 

Relavant Exhibits attached below   

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Exhibit 6 FPL Group-Financial Projections as of March 1994 Florida Power & Light Company Electric Sales (millions of KWH) Customer Accounts (thousands) Total Capacity (owned by FPL in MW) Net Income Depreciation and Amortization Capital Expenditures Maturing Debt Preferred Dividends Common Dividends (yellow = projected) Dividend per Share (@ 1% growth) Dividend Payout% (Dividend/Net Income) Avg. Shares Outstanding (millions) Capitalization Ratios Long Term Debt Preferred Stock Equity 1992 Actual 1993 Actual 69,290 3,281 16,627 $467 554 $1,270 152 44 431 2.43 92% 176.2 48% 6% 46% 72,455 3,350 16,697 $429 598 $1,337 11 43 461 2.47 107% 186.4 46% 6% 47% 1994 Estimate 74,411 3,437 17,559 $527 665 $901 2 40 478 2.49 91% 191.5 46% 6% 48% 1995 Estimate 76,420 3,526 17,563 $557 711 $831 81 40 484 2.52 87% 192.1 46% 6% 48% 1996 Estimate 78,484 3,618 18,030 $576 741 $743 101 40 489 2.54 85% 192.1 45% 6% 50% 1997 Estimate 80,603 3,712 18,051 $596 778 $769 4 40 494 2.57 83% 192.1 44% 6% 50% 1998 Estimate 82,779 3,809 18,051 $615 795 $624 185 40 499 2.60 81% 192.1 44% 6% 50% 1993-98 Annualized Growth 2.7% 2.6% 1.6% Exhibit 6 FPL Group-Financial Projections as of March 1994 Florida Power & Light Company Electric Sales (millions of KWH) Customer Accounts (thousands) Total Capacity (owned by FPL in MW) Net Income Depreciation and Amortization Capital Expenditures Maturing Debt Preferred Dividends Common Dividends (yellow = projected) Dividend per Share (@ 1% growth) Dividend Payout% (Dividend/Net Income) Avg. Shares Outstanding (millions) Capitalization Ratios Long Term Debt Preferred Stock Equity 1992 Actual 1993 Actual 69,290 3,281 16,627 $467 554 $1,270 152 44 431 2.43 92% 176.2 48% 6% 46% 72,455 3,350 16,697 $429 598 $1,337 11 43 461 2.47 107% 186.4 46% 6% 47% 1994 Estimate 74,411 3,437 17,559 $527 665 $901 2 40 478 2.49 91% 191.5 46% 6% 48% 1995 Estimate 76,420 3,526 17,563 $557 711 $831 81 40 484 2.52 87% 192.1 46% 6% 48% 1996 Estimate 78,484 3,618 18,030 $576 741 $743 101 40 489 2.54 85% 192.1 45% 6% 50% 1997 Estimate 80,603 3,712 18,051 $596 778 $769 4 40 494 2.57 83% 192.1 44% 6% 50% 1998 Estimate 82,779 3,809 18,051 $615 795 $624 185 40 499 2.60 81% 192.1 44% 6% 50% 1993-98 Annualized Growth 2.7% 2.6% 1.6%

Answer rating: 100% (QA)

Based on the financial projections reported in Exhibit 6FPL should be able to afford to increase div... View the full answer