s cost position in order to match with the competitive environment. Moreover, FPL needed to renew focus on its core business. It planed to sell several of the non-utility businesses. Furthermore, Broadhead commenced an aggressive capital expenditure program designed to meet projected demand into the next decade. FPL budgeted $6.6 billion, spread over five years, for the expansion. 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. At the same time, the company announced plans to return part of the cash saved by the dividend cut by repurchasing up to 10 million shares of stock over the next three years. FPL explained that this would reduce shareholders' taxes.We can say that the dividend changes have been so much less volatile than earnings changes because: 1) management believed that shareholders prefer a steady progression in dividends 2) managers are reluctant to make dividend changes that might have to be reversed. They are particularly worried about a dividend increase, which would affect the stock price. Broadhead needed money to invest in FPL; therefore, he needed to make the stock price increase in order to gain more money when issuing a new stock.Table 2.Electric companyFPL GroupCarolina PowerDuke PowerFlorida ProgressSCANA CorpThe Southern Co.TECO Energy, Inc.Return on common stock12.50%13.60%13.20%10.90%12.60%13.00%14.30%Earning per share$2.75 $2.23 $2.80 $2.26 $3.72 $1.57 $1.30 Dividend per common stock$2.47 $1.66 $1.84 $1.95 $2.74 $1.14 $0.95 Dividend yield6%5%5%6%6%5%4%Payout ratio (all dividend)91%74%68%87%74%75%73%From table 2, we can see that FPL has the highest payout ratio when comparing to the other company in the same area. While FPL's payout ratio was at the high end for electric utilities, the industry was also known for high payout ratio when comparing to the other industries.In previous years, during McDonald era, ...
