Essay on Dividend Policy at Fpl Group, Inc.
4) High Payout Ratio The payout ratio interprets the amount of earnings paid out in dividends from earnings available to shareholders. Currently, FPL has a payout ratio of 90%. While it is true that firms in the utilities industry typically have a high payout ratio, FPL's ratio is abnormally high. Given the possibility of expansion due to increased competition, FPL cannot afford to carry on such a high payout ratio. By decreasing the payout ratio, FPL can use a higher portion of earnings to encourage growth and safeguard against competition.
Firms pay dividends for several reasons; however the main reason is to reward shareholders for investing in the firm. Dividends send a signal to current and future investors that the company is financially stable. It also tells investors that they are sharing in the firm's profits, and encourages them to continue with their investment. There have been several debates regarding the benefits of consistent dividends for the investor. No one theory is conclusive concerning whether or not dividends should be paid, however they all agree that the company's dividend policy should be based upon the shareholder's preference.
Dividend Policy Theories
When discussing whether or not to pay dividends, theorists have