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Costco to spend $3 billion on special dividend

A shopper leaves a Costco store in Portland, Ore., in this Dec. 7, 2011, file photo.
A shopper leaves a Costco store in Portland, Ore., in this Dec. 7, 2011, file photo. Costco will spend $3 billion to pay a special dividend of $7 per share next month.Rick Bowmer / AP

Costco will spend $3 billion to pay a special dividend of $7 per share next month ahead of higher tax rates that may kick in come January. 

Many companies are making special end-of-year dividend payments or moving up their quarterly payouts because investors will have to pay higher taxes on dividend income starting in 2013, unless Congress and President Barack Obama reach a compromise on taxes and government spending. 

The Issaquah, Wash., company said Wednesday that the special dividend will be payable Dec. 18 to shareholders of record Dec. 10. In addition, Costco Wholesale Corp. will pay its regular quarterly dividend of 27.5 cents per share on Nov. 30 to shareholders of record as of Nov. 16. 

Costco also said Wednesday that its November revenue climbed nearly 9 percent to $8.15 billion. Revenue from stores open at least a year rose 6 percent. That increase would have totaled 5 percent excluding gains from gasoline price inflation and stronger foreign currencies. Sales were strongest in Texas, the Midwest and the southeastern U.S., as well as Canada and Mexico, the company said on a conference call. Customers snapped up candy, cooler and deli items and Costco said hardware, health and beauty and women's apparel categories also performed well. 

The company is selling $3.5 billion in debt to cover the cost of the special dividend. Costco will sell $1.2 billion in senior notes due in December 2015, $1.1 billion in notes due in December 2017, and $1.2 billion due in December 2019. 

Several Costco warehouses were closed during part of the month due to power outages following Superstorm Sandy. The company estimated that the storm trimmed 0.5 percent from sales of stores open at least a year. That is a key gauge of a retailer's health because it excludes results from stores recently opened or closed. 

Costco's shares rose $6.07, or 6.3 percent, to close at $102.58 on Wednesday. The stock has climbed from a low of $78.81 in early January to a 52-week peak of $104.43 last month. 

Investors have paid a maximum 15 percent tax rate on dividends since 2003. But that historically low rate is set to expire in January. Dividends will be taxed as ordinary income in 2013, the same as wages, so rates will go up depending on which income bracket a taxpayer is in. For the highest earners, the dividend rate could jump to 43.4 percent. Even if a political compromise is reached, there's no guarantee that the tax rate for dividends will remain at its current level. 

Fitch Ratings said Wednesday that it lowered Costco's issuer default rating one notch to "A+" from "AA-" because of the debt the company is taking on. Analyst Philip M. Zahn said "A+" is still considered an above-average, investment-grade rating. 

Costco runs 618 warehouses in several countries, including 447 in the U.S. and Puerto Rico.