Costco Wholesale Corp., the largest U.S. warehouse-club chain, gained the most in more than three years after announcing a special dividend of $7 a share totaling about $3 billion as it returns cash to investors.
The Issaquah, Washington-based retailer rose 6.3 percent to $102.58 at the close in New York for the largest gain since Sept. 3, 2009. The shares have advanced 23 percent this year.
Costco joins a growing number of U.S. companies, from Wynn Resorts Ltd. to Tyson Foods Inc., which 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 today as Costco reported a 10 percent increase in first-quarter sales.
The special dividend will be paid on Dec. 18 and is in addition to the regular quarterly cash dividend of 27.5 cents a share that was declared on Oct. 30, Costco said.
“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.”
Costco held $3.47 billion of net cash as of September, the most at that point in at least two decades, even after spending about $760 million to acquire the partner in its Mexican joint venture. Galanti said on an analyst call last month that there wasn’t “a great sense of pressure to change our modus operandi” with regard to dividends.
Congress is expected to let the dividend tax rate revert to the ordinary income rate, which tops out at 39.6 percent. From the end of September through today, 71 companies in the Russell 3000 stock index have declared a one-time cash payment to shareholders, up from 15 in the year-earlier quarter, according to data compiled by Bloomberg.
Also today, Costco said comparable sales rose 6 percent in the four weeks ended Nov. 25, with growth slowing from 7 percent in the previous month. Excluding the effects of gasoline prices and currency movements, monthly growth was 5 percent, it said, unchanged from October.