Fannie Mae, the largest US mortgage-finance company, is prepared to pay three-quarters of a percentage point more in annual dividends on $7 billion of new preferred stock than it did just last month on a similar security.

At least that's how the numbers work out after accounting for a 30 percent cut in Fannie Mae's common-stock dividend.

The company, which is based in Washington, said in a statement that the payout was reduced "in light of the planned preferred stock issuance".

The smaller dividend will save about $587 million a year based on the 978.2 million common shares outstanding as of October 22, the most recent date available.

These savings are equivalent to about 8.375 percent of the total face value of the preferred, which the company is selling to bolster capital.

Fannie Mae sold $500 million of preferred on November 16 that carried a 7.625 percent dividend.

Even that rate was high by the company's standards. Payouts on a dozen other fixed-rate issues ranged from 4.75 percent to 6.75 percent, according to data compiled by Bloomberg.

David Wilson is a Bloomberg News columnist. The opinions expressed are his own.

(China Daily 12/07/2007 page16)