The Wall Street Journal took on Costco's decision to borrow $3.5 billion in order to pay a hefty $3 billion in dividends to shareholders this month, saving wealthier shareholders a hefty tax hike of over 39 percent on the dividends as Bush-era tax cuts are set to expire.
The Issaquah-based Costco normally pays an annual dividend of about $1.12, but the company announced last week that this month it will pay shareholders a special dividend of $7 a share.
Sinegal bristled at the Journal's view that he himself--a vocal supporter of President Obama who hosted a campaign stop at his Hunt's Point home earlier--will be one of the biggest benefactors of the move. With a December payout, Sinegal will net around $14 million in dividends, but if he received that money after the tax cut expires, he would net around $8 million, the WSJ reported.
The Puget Sound Business Journal reported that Sinegal commented on the WSJ piece, saying that it was the right thing for the cash-rich company to do for its shareholders.
"It would be disingenuous to suggest we did not recognize a good opportunity – that the tax rate is going to go up,” Sinegal told PSBJ, adding, “Isn’t it prudent to do the right thing for the shareholders?”
Sinegal went on to say that compared to founders of other large companies, he owns only a small amount of stock--one-half of one percent of the company's stock--and most shareholders are not in that upper income echelon.
He said borrowing the money to pay a higher dividend made sense because interest rates are hovering around 1 percent, and it will leave the company with cash for further expansion.
Tell us what you think; should Costco pay the special dividend, or is it hypocritical to do so?