EconomyWritten by Havre On 29 November 2012
Costco To Pay Special Dividend Before Taxes Rise

Costco (COST, NASDAQ, 52 week range 78.81 – 104.43) announced it will pay a special dividend of $7 per share on top of its regular quarterly dividend. The special dividend will go to shareholders of record on Dec. 10 and will cost the company approximately $3 billion. The regular quarterly dividend of $0.275 per share will be paid to shareholders of record on Nov. 30.

Costco has a strong balance sheet with over $4.85 billion in cash and approximately $1.56 billion in debt. Revenues over the past 12 months were $99.14 billion with a $3.06 billion operating cash flow over the same period.

In a statement, Costco’s CFO Richard Galanti said the special dividend was the company’s “latest effort in returning capital to our shareholders while maintaining our conservative capital structure,” saying the firm’s “strong balance sheet” makes it possible.

The reality is that if Washington does not deal with the “fiscal cliff” by Dec. 31, the tax on dividends will rise from the current 15 percent to whatever the taxpayer’s current income tax rate will be, which could be as high as 39.6 percent.

Costco also reported sales for the month of November rising 9 percent to $8.15 billion, compared to $7.51 billion in the year earlier period. For the 12-week period, sales were up 10 percent to $23.21 billion, compared to $21.18 billion in 2011.

To pay for the special dividend, Costco will issue a debt offering of $3.5 billion. As a result, Fitch Ratings dropped Costco’s credit rating one notch from “AA-“ to “A+”, which is still considered above average investment grade.

Costco has 618 warehouse stores with 447 in the U.S. and Puerto Rico. Costco in Iwilei is one the best performing in the group, evident by an always-filled parking lot.

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Randy Havre has a wealth of experience in the financial industry. In 1987, he established his own full-service stock brokerage firm, which was also registered with the SEC as an Investment Advisory Firm, managing money for the State of Hawaii’s pension fund, among other portfolios. In 1994, he started his first of three Hawaii based Venture Capital Funds. Additionally, he wrote a weekly stock column in the Pacific Business News for 21 years, taught Finance 315 Portfolio Management and Investment Strategies at the University of Hawaii for five years and is on KHON’s Morning News as a business/financial analysis twice weekly. Over the past nine years, Havre has been active in South America doing business development work for some of his portfolio companies, mentoring entrepreneurs and advising investors.

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