Costco Has Special Holiday Gift To Shareholders: Dodging Fiscal Cliff

Costco Wholesale Corporation (NASDAQ:COST) has a special holiday gift to its shareholders. The warehouse merchant announced that it would pay a cash dividend of $3 billion, or $7 per share to its shareholders following good results in the month of November. The dividend will be paid on December 18, to record holders as of December 10. This will come only weeks following the issuance of the scheduled quarterly dividend of 27.5 cents per share.

Costco Has Special Holiday Gift To Shareholders: Dodging Fiscal Cliff

Costco Wholesale posted $8.15 worth of sales in the month of November representing 9 percent increase. The U.S SSS business was up 6 percent while the international unit rose by 7 percent. Overall, Costco sales stood at $23.2B for the quarter up nearly 10 percent year-over-year, beating Morgan Stanley (NYSE:MS)’s estimate of $22.8 billion.

The special dividend offer came as a shock to many as Costco Wholesale Corporation (NASDAQ:COST) is not characteristic of returning capital to shareholders. However, reports suggest that this could have been an attempt to help shareholders dodge the impact of fiscal cliff. Costco is not the only company issuing a special dividend to investors. Several companies are indeed paying the special dividend as they seek to help their shareholders avoid the heavy tax burden to be pegged on dividend payments beginning January 2013, including Wal-Mart Stores, Inc. (NYSE:WMT).

In a report published Wednesday, Morgan Stanley (NYSE:MS) analysts Mark Wiltamuth, Stephen Shin, and Landon Park wrote, ” We view Costco’s announcement of a $7 special dividend and a slight November SSS beat as positives for the stock and expect shares to trade up today”. The analysts added, “although Costco had a substantial cash cushion (about ~$11 share), we believe today’s move was largely unexpected as Costco has not been aggressive in returning capital to shareholders. We continue to rate COST shares Overweight as the best defensive idea in our Food, Drug and Discounters universe”.

At the time of this writing, Costco Wholesale Corporation (NASDAQ:COST) was up $4.62 per share, or 4.79 percent increase from yesterday’s close to trade at $101.13.


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