Updated 3/6/25
Costco Wholesale Corporation has built a retail empire through its membership-based model, offering bulk products at unbeatable prices. Shoppers keep coming back, drawn in by the value, quality, and unique finds at every visit. But beyond the warehouse aisles and massive product selection, Costco has also established itself as a reliable company for long-term investors.
For those focused on dividends, Costco’s track record is solid, even if its yield doesn’t immediately stand out. The company takes a disciplined approach to returning capital to shareholders, with steady dividend growth and the occasional special payout that can be a nice surprise. Let’s break down what makes Costco a compelling choice for dividend-focused investors.
Key Dividend Metrics
📈 Forward Dividend Yield: 0.45%
💵 Annual Dividend Rate: $4.64 per share
🛑 Trailing Dividend Yield: 0.23%
🔁 5-Year Average Yield: 0.66%
📊 Payout Ratio: 27.09% (Plenty of room for growth)
📅 Next Dividend Payment: February 21, 2025
❌ Ex-Dividend Date: February 7, 2025
🎁 Special Dividends: Occasionally issued
Dividend Overview
Costco doesn’t offer the kind of high yield that income-focused investors might typically chase. At just 0.45%, it’s lower than what you’d find in utilities or REITs. But that doesn’t mean it should be overlooked.
The company’s strength lies in its consistent dividend growth and disciplined payout strategy. With a payout ratio of just 27%, Costco retains plenty of earnings to reinvest in growth while still rewarding shareholders. This is key for long-term sustainability and shows that management prioritizes financial flexibility.
A big bonus for investors is Costco’s occasional special dividends. Over the years, the company has issued several, with the last one in 2020 delivering a hefty $10 per share. These special payouts make a huge difference in overall returns and help compensate for the lower base yield.
Dividend Growth and Safety
One of the most attractive aspects of Costco’s dividend is its impressive growth. The company has increased its payout for 19 consecutive years, and the pace of growth has been strong:
- 5-year dividend growth rate: around 12%
- 10-year dividend growth rate: around 13%
This steady upward trend is a great sign for investors who want reliable income that outpaces inflation.
The low payout ratio ensures there’s room for even more increases in the future. Even in a slowdown, Costco has the flexibility to keep raising dividends without straining its balance sheet. And with its history of rewarding shareholders through special dividends, the overall income potential is much better than the base yield suggests.
Chart Analysis
Price Action and Trend
Costco’s stock has been riding a strong uptrend over the past year, with the price consistently making higher highs and higher lows. The overall movement reflects a healthy bull market structure, with buyers stepping in at key support levels.
The price recently hit an all-time high before pulling back slightly, suggesting some profit-taking. However, it remains well above both the 50-day and 200-day moving averages, a sign of continued strength. The 50-day moving average is trending upward, acting as dynamic support, while the 200-day moving average remains on a steady incline, confirming the long-term bullish trend.
Moving Averages
The stock has been respecting the 50-day moving average, using it as support during pullbacks. As long as the price stays above this level, the trend remains intact. The 200-day moving average is further below, showing that even a deeper correction wouldn’t necessarily signal a trend reversal, just a potential cooling-off period before another move higher.
The gap between these two moving averages is widening, which typically indicates strong momentum. However, when the price stretches too far above the shorter moving average, there’s always a risk of short-term overextension and mean reversion.
Volume and Market Participation
Volume has been relatively steady, with occasional spikes during larger price movements. The higher-than-average volume on recent dips suggests that buyers are stepping in at lower prices. This is a positive sign, as it indicates that institutions or larger investors are accumulating shares rather than exiting positions.
One thing to watch is whether volume picks up on rallies. If price continues to climb but volume weakens, it could be a sign that momentum is fading. For sustained upside, it’s important to see increasing participation from buyers.
Relative Strength Index (RSI)
The RSI shows that Costco’s stock was in overbought territory recently but has since cooled off. This aligns with the pullback from the recent highs. The indicator is still in bullish territory but not at extreme levels, meaning there is still room for another leg up if buyers step in.
A drop in RSI closer to 50 would indicate a more neutral stance, but as long as it stays above that level, the uptrend remains in control. If RSI dips further, it could signal a deeper correction or a shift in momentum.
Recent Price Action and Candlestick Analysis
Looking at the last few candles, there is a mix of indecision and mild selling pressure. The wicks on both ends of the candles indicate some back-and-forth action between buyers and sellers. This kind of price behavior is typical after a strong rally, as traders take profits and wait for a clearer direction.
The most recent candle shows that buyers tried to push higher but met resistance, leading to a close near the lower half of the day’s range. If this continues for a few more sessions, it could signal a short-term consolidation phase before the next big move.
Key Levels to Watch
- The previous high near 1100 is an important resistance level. If price reclaims that zone with strong volume, it could trigger another breakout.
- Support at the 50-day moving average, currently around 1000, is critical. A break below this could bring more downside pressure.
- The 200-day moving average near 900 serves as a long-term support zone, and any major pullback toward this level would likely attract strong buying interest.
Analyst Ratings
Upgrades and Positive Revisions
📈 Bernstein: Raised its price target for Costco to $1,177, emphasizing strong sales growth and an effective business strategy. The firm believes Costco’s membership model continues to drive stable revenue, making it a resilient performer in retail.
💰 TD Cowen: Increased its price target to $1,100, citing Costco’s operational strength and ability to sustain growth despite economic uncertainties. Analysts pointed to the company’s pricing power and consumer loyalty as key advantages.
📊 Stifel: Maintained a Buy rating and set a price target of $1,075, highlighting Costco’s consistent financial performance. The firm noted that warehouse traffic remains robust, with consumers prioritizing bulk purchasing amid inflation concerns.
These positive revisions reflect confidence in Costco’s long-term fundamentals, with analysts particularly impressed by its membership-driven revenue and ability to pass on cost savings to consumers.
Downgrades and Cautious Stances
⚠️ Truist Securities: Adjusted its price target to $995, up from $935, but kept a Hold rating. Analysts acknowledged Costco’s strength but expressed concerns about its current valuation, suggesting that upside potential might be limited in the short term.
📉 Loop Capital: Slightly lowered its price target to $1,135 from $1,150, maintaining a Buy rating but cautioning that Costco’s premium valuation could make it vulnerable to pullbacks if growth slows.
These cautious views stem from concerns over valuation, with some analysts wary of Costco’s high price-to-earnings ratio relative to historical levels. While the company’s fundamentals remain strong, some firms suggest that the stock may be priced for perfection, leaving little room for error.
Consensus Price Target
🔎 The overall consensus among analysts places Costco’s average price target around $1,063, implying moderate upside from recent levels. Analysts continue to recognize the company’s dominance in the retail space, but some urge caution due to the premium valuation.
The mix of optimism and caution reflects a balance between recognizing Costco’s strengths and acknowledging potential risks. Investors watching the stock may consider both perspectives, weighing its consistent performance against the possibility of short-term price fluctuations.
Earnings Report Summary
Costco’s latest earnings report showed strong sales growth, but it also came with a few challenges that kept profits from reaching Wall Street’s expectations. The company pulled in $62.53 billion in net sales for the quarter, which is 9.1% higher than the same time last year. Over the first 24 weeks of the fiscal year, total sales climbed to $123.52 billion, reflecting an 8.3% increase year-over-year.
Even with these strong sales figures, net income for the quarter landed at $1.79 billion, with earnings per share (EPS) of $4.02. While that’s an improvement from last year’s EPS of $3.92, it still came in slightly below analyst estimates, which had been looking for $4.09 per share. The main culprit? Rising costs. Everything from coffee to cocoa and eggs has seen price increases, putting some pressure on Costco’s margins.
Looking at February’s numbers, net sales hit $19.81 billion, up 8.8% from $18.21 billion a year ago. Comparable sales rose 6.5%, with U.S. locations leading the way at 8.6% growth. Meanwhile, e-commerce sales surged 19%, showing that shoppers are continuing to embrace Costco’s online shopping experience.
The company keeps growing its global footprint, now operating 897 warehouses worldwide. That includes 617 locations in the U.S. and Puerto Rico, along with stores in Canada, Mexico, Japan, the U.K., Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. On top of that, Costco’s online presence continues to expand, giving members more ways to shop beyond the warehouse.
During the earnings call, CEO Ron Vachris addressed concerns about inflation and potential new tariffs, saying that Costco is constantly adjusting its sourcing strategies to keep costs in check. While price pressures remain a challenge, the company is focused on staying competitive without sacrificing value for members.
CFO Gary Millerchip noted that shoppers have been prioritizing essentials, though high-end electronics, like massive 98-inch and 100-inch TVs, were hot sellers during the holiday season. That suggests that while many consumers are watching their spending, they’re still willing to splurge when the right deals come along.
Overall, the report highlights Costco’s ability to drive consistent sales growth, even in a tough economic environment. The company is navigating cost pressures well, and with its expanding footprint and strong membership base, it remains a dominant force in the retail space.
Financial Health and Stability
A company’s ability to sustain and grow dividends ultimately depends on its financial strength, and Costco’s numbers are solid. The business runs on a highly efficient model, with steady revenue from membership fees and a loyal customer base.
- Total Cash (Most Recent Quarter): $13.16 billion
- Total Debt: $8.04 billion
- Debt-to-Equity Ratio: 31.43%
- Operating Cash Flow (TTM): $11.96 billion
- Levered Free Cash Flow (TTM): $5.57 billion
The most reassuring factor is that Costco holds more cash than debt. This gives it the flexibility to weather downturns, invest in expansion, and continue returning capital to shareholders. The company also benefits from its high membership renewal rate, hovering around 90%, which provides a stable stream of income even when retail conditions get tough.
Cash flow is another major strength. With nearly $12 billion in operating cash flow over the past year, Costco generates plenty of liquidity to support its dividend payments while maintaining financial flexibility.
Valuation and Stock Performance
Costco’s stock has been on a strong run, rising over 40% in the past year. That’s well ahead of the broader market, but it also means the stock isn’t exactly cheap.
- Trailing P/E: 59.93
- Forward P/E: 56.50
- PEG Ratio (5-year expected): 6.15
- Price-to-Book: 17.81
These numbers indicate that Costco is trading at a premium. The stock has always carried a high valuation due to its reliability and growth, but a P/E ratio near 60 is steep. Investors who buy at these levels should be prepared for potential short-term volatility, especially if earnings growth slows or if there’s a broader market pullback.
However, Costco has a track record of justifying its valuation. The stock may not be a bargain, but it has consistently delivered strong returns to long-term holders. The recent drop of over 7% in a single day could present a better entry point for investors waiting for a slight pullback.
Risks and Considerations
High Valuation
Costco’s stock isn’t cheap, and that’s the biggest risk. Paying a premium for a great company can still work out in the long run, but it increases the chances of short-term corrections. If earnings growth slows or the market takes a downturn, the stock could see significant price swings.
Low Dividend Yield
For investors looking for high immediate income, Costco’s 0.45% yield might not be attractive. While the dividend growth is strong, those who rely on steady payouts may prefer stocks with higher yields.
Competitive Pressures
Retail is a tough business, and while Costco has a strong position, it still faces competition from Walmart’s Sam’s Club, Amazon, and other grocery chains. Its warehouse model gives it a pricing advantage, but it operates on thin margins, with an operating margin of just 3.63%. Rising costs, including wages and supply chain expenses, could put pressure on profitability.
Economic Sensitivity
Costco tends to do well even in economic downturns because shoppers look for value. But no company is completely immune to recessions. A significant slowdown in consumer spending or higher inflation could impact sales and profitability.
Final Thoughts
Costco may not be the first stock that comes to mind for dividend investors, but it has a lot to offer. The combination of steady dividend growth, a low payout ratio, strong financials, and occasional special dividends makes it an excellent long-term holding.
The biggest challenge is the high valuation. It’s a premium-priced stock, and while Costco has earned that status, investors should be mindful of potential price fluctuations. Those willing to hold for years and ride out the ups and downs have historically been rewarded.
For dividend investors who prioritize stability, growth, and long-term wealth building over immediate high yields, Costco remains a strong contender.
Recent Comments