Fonterra has announced significant changes to its dividend policy, including a move to regularly retain earnings, as it prepares shareholders for a more corporate way of doing business.
The dairy co-operative's board also announced yesterday it was keeping its fair value share price at $4.52 this season, despite an independent valuer calculating a fair value mid-point valuation of $5.10 a share and a restricted market midpoint of $3.83.
Fonterra chairman Sir Henry van der Heyden said the decision to hold the share value at $4.52 reflected the fact it operated a restricted market, as only suppliers can own shares.
But it also decided to hold the share value given the pending shareholder debate on whether to allow trading of shares between farmers due to be held next year - the third step in the company's proposed capital restructuring.
Shareholders have already approved two aspects of the capital restructuring: allowing shareholders to hold shares up to 120% of their milk production and changes to the way the shares were valued given the restricted market.
Sir Henry also announced that from the 2010-11 season, it would target a dividend payment ratio of 65% to 75% of distributable profit, paid in April and October, leaving 25% to 35% of distributable profit as retained earnings.
For this season Fonterra has forecast a distributable profit of between 35c and 45c a share, including non-recurring items, such as the sale of its stake in a United Kingdom joint venture, and it was targeting a dividend of between 20c and 30c a share.
This equated to an annual return of 7% to 10% on a $4.52 share.
The board has left itself plenty of wiggle room with its dividend policy to take into account issues such as non-recurring items, average dividends paid in the previous three years, short-term earnings projections, investment priorities, gearing targets and "any other factors the board considers relevant".
That included milk payments and existing or likely market conditions.
