Retailing giant Costco (COST) has announced a 13% uptick in its dividend last week. The double-digit boost was a reminder about why the stock is such a wonderful investment for people seeking income from their portfolio. The retailer has now raised its dividend 17 consecutive years, and there is very likely more to come.

But there is much more to Costco than its 0.9% dividend. Here’s a look at why investors might want to look at Costco stock at a deeper level.

More growth

Costco’s recent dividend boost was a big acceleration over the company’s 8% dividend last year. The dividend’s greater growth, however, is not a surprise given the company’s momentum.

Costco’s revenue increased 13% over 12 months and its earnings per share went up by 16% over the past 12 months. Further, Costco’s sales for the five-week time frame closing on April 4 went upward by 16%, with its same-store sales also increasing 11%.

Management is also looking to maximize e-commerce. With its online sales being up by 76% year over year. And even as the economy starts back, Costco still witnessed 55% growth in online sales during the five-week time frame closing on April 4.

Costco’s other dividend

But here is what investors usually miss about Costco. The company has sometimes paid out large special dividends on top of its normal dividends. In 2020 the company paid a $10 special cash dividend. This was 14 times bigger than its quarterly payments.

While management never guarantees it will pay a special dividend, the payday for investors has been an almost normal occurrence. With $5 to $10 special payments being made in 2012, 2015, 2017, and 2020.

With so many special payments paid since 2012 — it’s safe to bet that Costco’s sub-1% dividend does not do the company justice when it comes to dividend payout.

Even better, the company’s regular dividend makes up under 30% of the company’s earnings. Meaning there is a lot of room for further growth in Costco’s dividend — especially with its earnings going up.

Costco’s excellent momentum, history of dividend increases and special payments, and low payout relative to income make this the perfect long term dividend stock for people looking for income.


Author: Scott Dowdy

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