24/7 Wall St. Insights

• Costco Wholesale Corp. (NASDAQ: COST) just rewarded its shareholders again with a quarterly dividend.
• Its dividend has grown significantly over the past decade.
• Also: 2 Dividend Legends to Hold Forever.

Costco Wholesale Corp. (NASDAQ: COST) is rewarding its shareholders once again, this time with a quarterly dividend of $1.16, payable on Friday, Nov. 15. That is in line with the prior two payouts. Shares are trading near an all-time high and may be due for a stock split. The continuing dividend underscores the management’s commitment to delivering consistent value to investors.

Why Investors Like Dividends

Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.

Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.

Costco’s Dividend

Costco has paid a quarterly dividend since 2014, when it was $0.31 a share. Not only has the retailer hiked its dividend every year since then (a total gain of over 247%), but it also periodically provides shareholders with a bonus dividend. The most recent was a whopping $15 a share at the end of 2023.

Note that the share price has grown by around 546% in that time as well, offering investors plenty of growth along with the income.

The Company

The company operates over 800 membership warehouses in North America, Europe, Australia, and Asia that offer branded and private-label products in a range of merchandise categories, including groceries, office supplies, electronics, sporting goods, apparel, and appliances. It also operates gasoline stations, pharmacies, optical centers, food courts, and tire installation centers, as well as offering business delivery, travel, grocery, and various other services online. And it operates e-commerce websites.

Its headquarters are in Issaquah, Washington, which is in the Seattle area. The company was founded in 1976 by Sol Price, the “father” of the warehouse club retail model, and his son. It went public in December of 1985. The company’s main rivals are BJ’s Wholesale Club Holdings Inc. (NYSE: BJ) and the Sam’s Club business of Walmart Inc. (NYSE: WMT). It also competes with other big-box stores, including Target Corp. (NYSE: TGT), and with Amazon.com Inc. (NASDAQ: AMZN).

The company has been cracking down on members who share their membership cards, which has resulted in a boost to new memberships. New locations are expected to open in Bend, Oregon, and Napa, California. Costco is one of the most admired brands in America, and some analysts have speculated that its market cap could be $1 trillion by 2030. Investors have also speculated about when the stock might split.

The Stock

The share price has grown over 204% in the past five years, far outperforming the S&P 500. In the past 90 days, the stock is up nearly 19%, while the S&P 500 is 13% or so higher. Shares hit an all-time high of $962 recently. The mean price target is $935.30, which for now signals marginal upside in the coming year. Of 29 analysts who cover the stock, 18 recommend buying shares, seven of them with Strong Buy ratings. Bernstein recently initiated coverage with an Outperform rating, and Telsey Advisory just maintained its Outperform rating.

Institutional investors hold almost 72% of the shares. Blackrock, State Street, and Vanguard have notable stakes. About 442 million shares, or more than 1% of the float, are held short.

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