e investors will end up with the shares of FPL Group for a long-term investment, because there are significant signs that the company offers good growth prospects. 4. RecommendationFrom the analysis and evaluation carried out on the previous sections, we believe that Kate Stark should recommend to her investors to HOLD their shares in FPL Group on the 5th May 1994. The reasons for this choice are that the company offers good growth prospects, but the price could decline further in the short term, so it would not be profitable to buy at that date, and it would be very unprofitable to sell for the long-term.Q.6 What dividend decision did FPL make in May 94? How did the share price respond to this announcement in both the short and long terms? Do you think that the market responded rationally to the news?As soon as the report by Merrill Lynch's utilities analyst was published, FPL's stock price tumbled by more than 6%. However this did not deter FPL's management from taking the unprecedented step to reduce dividend payout to 42 Cents per share ($1.68 annually), a 32% reduction from the previous dividend of 62 Cents ($2.48 annually). The company also felt that it would be prudent to reduce debt, and that part of the cash savings from the dividend cut would be used for this purpose. The management's plan also called for a common stock repurchase program. FPL Authorised the repurchase of 10 million shares over the next three years. It would purchase at least 4 million shares in the first 12 months.Finally FPL promised an earlier annual dividend review. To more closely link dividend action to annul earnings, the dividend rate will be evaluated in February, starting in 1995. The company previously evaluated the dividend rate in May, in conjunction with its annual meeting.Although all this sounded logical, the news initially surprised investors, who hammered FPL's stock down 14%. Which seems rational since this was the first-ever dividend cu...
