mpetition at the heart of its strategy. Sound financial position: by 1994, the group was the largest utility in Florida, with record results in 1993, and 1994 expected to be even better due to decreasing capital expenditures and increasing sales. In short, from a financial point of view, and looking at the financial statements of the company for 1993, the group seems to represent a healthy business with a sound structure and long-term strategy, that would see it go through the deregulation of the industry without major distress. Competitive position: FPL is likely to be amongst the winners from deregulation because of its intelligent long-term competitive strategy. Positive effects of a dividend cut: if it is true that the group will decide to cut its dividend, then this decision must have strategic implications for the long-term growth of the utility. A dividend cut will: create more alternative sources of capital (retained earnings) allow the company to reduce its debt ratio, and thus its interest payments. allow the company to exploit more investment opportunities, instead of paying most of it earnings as dividends. bring FPL's payout ratio to the industry's average, and allow for higher future dividend growth. redefine FPL as a growth company in an unregulated environment rather than an income company with a monopoly in its market.2. Negative Factors Increasing competition in the electric utility industry, combined with greater business risk and lower bond ratings. Higher potential for agency problems with dividend cuts, as managers will have more cash to spend on unprofitable projects or on their own pleasures. The new incentive plan does not really help with this problem, as bonuses would be paid out in stock and cash in the ratio 60/40 down from a ratio of 70/30. Dividend cuts were not common for utilities except in situations of financial trouble. The company had also the option of growing out of i...
