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The Price Co., the San Diego-based operator...

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The Price Co., the San Diego-based operator of 41 Price Club discount warehouses, plans to distribute dividend-paying preferred shares to its common stockholders, the company said at its annual shareholders meeting Tuesday in Phoenix.

Subject to approval by shareholders and federal regulators, the distribution as planned would be one share of preferred stock for each five shares of common stock owned, or about 9.9 million preferred shares.

Each share would pay an annual dividend of $2.50 per share of preferred.

Chief executive Robert Price said payment of the dividends are subject to certain profit goals of the company but unpaid dividends would cumulate for subsequent payment.

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The distribution itself will probably not be taxable to shareholders, although cash dividends on the preferred will be taxable as would sale of the preferred shares, Price said.

Price said the creation of the preferred stock “effectively separates participation in an annual yield from participation in the ongoing future of the company.”

“Many of our shareholders have wanted us to pay a dividend for some time,” Price said in a prepared statement. “But we have long felt that a common stock dividend was not appropriate for a growth company like ours. This procedure will provide for the equivalent of an annual dividend of 50 cents per common share, but shareholders who aren’t interested in a dividend can sell the preferred and keep the common stock.”

A special shareholders meeting to vote on the stock issue will probably be held in March with the distribution, if approved, to follow in late March or April, Price said.

Price Co. stock closed up $.75 at $38.75 a share in over-the-counter trading Tuesday.

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