Risk & Compliance

What It Is Ain’t Eggs-actly Clear

Dividends from egg-producer Cal-Maine now will fluctuate according to the company's quarterly income.
Stephen TaubApril 10, 2008

Cal-Maine Foods said it is establishing an unusual, variable rate dividend policy, meaning that the dividend will rise or fall according to the company’s quarterly income.

The egg producer will start by paying out one-third of its earnings for the third fiscal quarter ended March. That works out to about $0.807 per share to common stock holders. Holders of Class A common stock will receive dividends equal to 95 percent of that amount, or $0.767 per share.

The dividend on Variable Rate Preferred Stock also periodically changes, but this is pegged to a certain interest rate benchmark.

While companies commonly cut or hike dividends depending on their financial condition, Cal-Maine is signaling to investors that they can’t count on a steady dividend rate for a sustained period of time. Thus, the strategy both diverts financial risk to investors and serves to manage their expectations. “We believe this new dividend policy is in the best interest of the company and its shareholders,” said Fred Adams, Jr., chairman and CEO.

Dividends are also variable at real estate investment trusts, though REITS must pay out at least 90 percent of their taxable income to shareholders in order to avoid paying income taxes.

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