Guess What? Another Special Dividend Is Coming Out of Retail

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Shares of Guess? (NYSE: GES) were up more than 5% in after hours trading as the fashion retailer reported third quarter results.  Those post market gains were on top of the 5% shares gained leading up to the report though shares are still down more than 15% for the year.  Those gains were despite an earnings report that wasn’t all that alluring, it would seem that the announcement of a special dividend was what caught the eye of investors.

In additional to their regularly scheduled $0.20 a share dividend the company announced that they were including a special payout of $1.20 a share to shareholders who own the stock by the close of business on Dec. 12.  While that’s a yield of more than 5% it’s also just about double what investors have bid the stock up on the day.   

Guess? is joining fellow retailer Costco (NASDAQ: COST) on the special dividend bandwagon.  Earlier in the day the warehouse club giant announced their own debt funded $7 a share payout.  Taking on $3 billion worth of new debt to pay shareholders a special dividend would normally not be a wise capital allocation decision.  However, Costco has a very strong balance sheet and conservative capital structure to go along with very favorable access to capital markets which make this payout a bit more palpable. 

While Guess? is also well capitalized they’re choosing to simply return some excess cash to shareholders instead of levering up.  It’s also not the first time they’ve chosen to send a sizable chunk of cash back to their investors having previously paid a $2.00 special dividend back in 2010.  While Guess? has struggled to grow due to the current economic malaise this special payout is a nice reward to shareholders who’ve stuck with the company through the down times.

It’s likely we’ll see more retailers join these two in giving their investors a little something extra this holiday season.  We’ve already seen The Buckle (NYSE: BKE) declare a special $4.50 payout.  This was the continuation of a trend that has spanned each of the past five years which has seen the company pay out a special dividend of $2 or more a share.  Earlier this year we saw American Eagle (NYSE: AEO) announce a $1.50 special dividend which was something they were potentially poised to do.

Others like Wal-Mart (NYSE: WMT) are simply accelerating the payment date to ensure their investors avoid paying any increased taxes that are a possibility due to the looming fiscal cliff.  That list will likely be much longer than those issuing special payouts as it’s an expenditure that the company was already anticipating.  Wal-Mart felt that moving up the pay date was in  the “best interest of its shareholders” due to the looming tax increases. 

Special dividends are a great way to reward shareholders and typically are a much more effective use of capital than some of their other options.  While these companies could easily have used that cash to make an acquisition or buy back shares those options have been known to incinerate shareholder capital if not done wisely.  So who’s next in line for the special payout?  Check out this video for a list of some likely candidates.

latimerburned owns shares of Guess? The Motley Fool owns shares of The Buckle and Costco Wholesale. Motley Fool newsletter services recommend American Eagle Outfitters, The Buckle, Costco Wholesale, and Guess?. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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