Costco will spend $3 billion to pay a special dividend of $7 a share next month ahead of higher tax rates that may kick in come January.
The Issaquah-based company joins a growing number of U.S. companies, from Wynn Resorts to Tyson Foods, that are announcing special dividends at four times the pace of last year ahead of pending tax increases in 2013. The rate on dividends, which was reduced to 15 percent during the George W. Bush administration, is set to go up as President Obama and Congress work to draw more revenue from top earners.
The $7-a-share payment reflects the company’s “strong balance sheet and favorable access to the credit markets,” Chief Financial Officer Richard Galanti said Wednesday as Costco reported a 10 percent increase in first-quarter sales.
The special dividend will be paid Dec. 18 and is in addition to the regular quarterly cash dividend of 27.5 cents a share declared on Oct. 30, Costco said.
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“It’s a tangible way of rewarding shareholders that avoids the lottery of a share buyback,” said Bryan Roberts, an analyst at Kantar Retail in London. “They’ve amassed significant cash reserves, partly due to their success. They have been one of the most successful retailers in the past 20 years.”
Among the biggest beneficiaries of Costco’s special dividend will be co-founders Jim Sinegal and Jeffrey Brotman, and Chief Executive Officer Craig Jelinek.
Sinegal, who retired as Costco’s CEO at the end of 2011 but remains on the board, and various related entities together own more than 2 million Costco shares, according to filings with the Securities and Exchange Commission (SEC). His payout from the special dividend will be about $14.4 million.
Brotman, Costco’s chairman, and various family members and related entities together own 734,834 shares, making the special dividend worth $5.1 million to him. Jelinek owns 197,142 shares and will receive $1.4 million.
Though Costco had more than $3.5 billion in cash and equivalents as of Sept. 2, it plans to pay for the special dividend by issuing new debt. It sold $3.5 billion of debt Wednesday, its first offering in almost six years
Costco has a conservative capital structure for a company its size: less than $1.4 billion in long-term debt and a debt-equity ratio of 11.0. Some analysts have called the company underleveraged, passing up opportunities to borrow cheaply while hoarding cash instead of distributing it to shareholders.
Costco also said Wednesday that its November revenue climbed nearly 9 percent to $8.15 billion. Revenue from stores open at least a year rose 6 percent.
Seattle Times business reporter Drew DeSilver and Bloomberg News contributed to this report.