Maybe investors have been whispering in the ear of that cuddly ol’ warehouse retailer Costco (COST), which has recently announced a special cash dividend of $7 per share, payable on Dec. 18. That’s a holly jolly $3 billion, by Costco’s numbers.
Costco is No. 24 on BetterInvesting Magazine’s Top 100 Companies held by our members. Our advice: Be happy with the loot and don’t hold out for glitzy wrapping paper and 3 billion adorable bows.
“Our strong balance sheet and favorable access to the credit markets allow us to provide shareholders with this dividend,” says Richard Galanti, the corporation’s executive vice president and chief financial officer.
Costco says that November sales at stores open at least a year rose by 6 percent, aided by higher gas prices and a weaker dollar.
Here’s the word, straight from the reindeer’s mouth, so to speak, at the Costco investor relations website.
The membership-only retailer isn’t alone in dashing off dividend checks.
“Several companies have declared one-time cash dividends in recent days ahead of a likely increase in the dividend tax rate due to the so-called fiscal cliff — a combination of tax increases and spending cuts due to kick in at the beginning of next year if Congress and the White House cannot reach an agreement on a new deficit cutting plan,” Reuters reports.
“We expect many cash-rich, stable operating companies to follow this trend, along with companies that have high insider ownership,” Janney Capital Markets analyst David Strasser said in the Reuters article.
The Exchange blog at Yahoo! Finance notes that Costco joins “at least 68 other companies in the broad Russell 3000 index that have declared a special payout since September.” The Exchange further suggests that Costco hitherto has been a bit closefisted about sharing the wealth via dividends:
“Its regular dividend rate of $1.10 a share is stingy, amounting to a 1.1% yield and around 25% of this year’s expected earnings. Costco, too, has arguably been underleveraged. It has three times as much cash on its books as debt, ahead of the forthcoming debt offering.
“Such cash-heavy balance sheets, while loved by bondholders, can indicate an inefficient capital structure that fails to deliver maximum benefit to equity owners. In this respect, Costco’s decision to sell $2 billion worth of debt to partially fund its $3 billion special dividend could be a lasting positive for its shareholders, to the extent that the company maintains the new debt-to-capital mix.”
BetterInvesting is a national nonprofit organization that has been empowering individual investors since 1951. Founded in Detroit, the association (formerly known as National Association of Investors Corporation) was born out of the conviction that anyone can become a successful long-term investor by following commonsense investing practices. BetterInvesting has helped more than 5 million people become better, more informed investors by providing webinars, in-person events, easy-to-use online tools for analyzing stocks and mutual funds, a monthly magazine and a community of volunteers and like-minded investors. For more information about BetterInvesting, visit its website at http://www.betterinvesting.org/investing/landing/openhouse/blog/index.html or call toll free (877) 275-6242.
Want more BetterInvesting? Sign up for our free weekly investing newsletter at www.betterinvesting.org/weekly.