UPDATE 4-Costco to pay out $3 billion in special dividend
* Declares special dividend of $7 a share
* Several other companies plan payouts before year-end
* Costco shares up 6.3 percent
* Governance experts raise eyebrows at some payouts
By Jessica Wohl
Nov 28 (Reuters) - Retailer Costco Wholesale Corp said it would pay a special dividend totaling roughly $3 billion, the largest payout so far from any company ahead of a likely increase in the U.S. dividend tax.
The warehouse club operator will use proceeds from a $3.5 billion debt offering to pay for the dividend, it said Wednesday. It also posted higher-than-expected November sales, and shares rose 6.3 percent.
Several companies have declared one-time cash payouts 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 2013 if Congress and the White House cannot agree on a plan to reduce the federal budget deficit.
In some cases, insiders are among the biggest beneficiaries of the special payouts, as well as shifts of regular dividends into 2012 from 2013.
That is not the case at Costco, known for keeping prices low while compensating employees with wages and benefits above the U.S. retail average.
Co-founder Jim Sinegal, who left his position as chief executive officer on his 76th birthday in January, is the chain's 33rd-largest shareholder. However, he is also the company's biggest individual owner, with about 2 million shares, according to Thomson Reuters data.
By contrast, Las Vegas Sands Corp Chairman Sheldon Adelson, a billionaire Republican donor, and his family stand to get more than half of the casino developer's special dividend announced on Monday. The payout totals about $2.27 billion, based on the number of outstanding shares as of Sept. 30.
Also on Monday, Dillard's Inc announced a special dividend of $5 per share. Dillard family members are three of the top 11 shareholders at the department store operator. On Tuesday, spirits company Brown-Forman Corp declared a $4-a-share special dividend. Two of the nine largest Brown-Forman shareholders are affiliates of the Brown family.
On Wednesday Guess Inc declared a special $1.20-a-share dividend. Members of the Marciano family control more than 26 percent of Guess stock.
In early November, Wynn Resorts Ltd paid a dividend of $8 per share, including a regular 50-cent payout. Chief Executive Officer Stephen Wynn and his ex-wife, Elaine, each own nearly 10 percent of the company's stock.
On Nov. 19, Costco's biggest rival, Wal-Mart Stores Inc , moved its planned dividend to late December from early January to help shareholders avoid any increase in the tax rate. The family of founder Sam Walton owns just over half of the company's shares.
One governance expert said it always raised suspicions whenever a company dominated by insiders decided to pay out a large dividend, since they reap the rewards.
"We would automatically raise a red flag for a company if it was paying out an unusually large cash dividend at this point in the year simply to take account of potential tax hikes without taking into account long-term investment," Paul Hodgson, chief research analyst at governance group GMI Ratings.
But Hodgson said dividends like Costco's could potentially be seen as something like corporate altruism, if insiders were not benefiting and a dividend was the best use of cash.
Costco's dividend is worth nearly $3.07 billion, based on the number of shares outstanding as of early September, the end of the company's fourth quarter.
Costco shareholders have done well since the worst of the financial crisis. The shares have had a total return of 56.9 percent since end of September 2008, compared with a 32.8 percent total return for Standard & Poor's 500 index.
Special dividends "make a lot of sense right now" given the looming tax increase, and other companies may follow suit, said Randy Warren, chief investment officer of Warren Financial Service, a registered investment advisory firm.
"We might even see something from some tech companies, some of the giants that have a lot of cash on their balance sheets, companies like Apple, Microsoft and Cisco," he said. "The timing is the overwhelming consideration, but if they really had something better to do with the cash I'm sure they would do it."
Warren's holdings include Costco, Apple Inc, Microsoft Corp and Cisco Systems Inc.
LOTS OF CASH
The third item on Costco's code of ethics is to "take care of our employees." Fifth on the five-point list, the company's "ultimate goal" is to "reward our shareholders."
Costco keeps expenses low, everywhere from its Issaquah, Washington, headquarters to stores, where shoppers who pay annual membership fees of up to $110 carry purchases out in their own bags or reused cardboard boxes.
The hot-dog-and-fountain-drink combo sold at Costco's food courts is a longstanding signal of the chain's focus on low prices. The combo has cost $1.50 since Costco started selling hot dogs from a cart in 1985.
Costco will pay its special dividend on Dec. 18 to shareholders of record on Dec. 10.
November sales at Costco stores open at least a year rose 6 percent, topping the analysts' forecast of 5.4 percent growth, according to Thomson Reuters I/B/E/S.
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