Last week, Costco Wholesale (NASDAQ:COST) announced that it was raising its dividend from 90 cents per share to $1.02, for an increase of 13%. With the increase, investors will now be collecting $4.08 per share over the course of a full year, which equates to a yield of 0.81%. That's a relatively modest payout when you consider the S&P 500 average yield is 1.7%. It would take an investment of more than $123,000 in Costco stock to earn $1,000 in dividends per year.
Over the years, however, Costco has been consistently raising its dividend payments. Five years ago, in 2018, the quarterly dividend was $0.57 – it has risen by 79% since then, averaging a compounded annual growth rate of 12% during that stretch.
And while Costco's stated dividend yield may be unimpressive, the company has also paid special dividends in the past. Although special dividend payments are nonrecurring and typically happen when a company has a strong year (such as in 2020 when Costco issued a $10.00 per share special dividend), that can significantly boost the dividend payment for investors. The benefit of a special dividend is the company rewards shareholders in a strong year without having to offer a high dividend that could otherwise put a strain on its cash flow.
If Costco were to continue raising its dividend at a rate of 13% annually, it would take about six years for the dividend to double. Given the company's strong business, dividend growth, and occasional special dividend, Costco's stock can make for an underrated income investment to buy and hold.
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Now, delving into the article by David Jagielski on April 24, 2023, it discusses Costco Wholesale (NASDAQ:COST) and its recent dividend announcement. The article highlights that Costco is increasing its dividend from 90 cents per share to $1.02, representing a 13% increase. This adjustment results in investors collecting $4.08 per share annually, translating to a dividend yield of 0.81%, which the author notes is relatively modest compared to the S&P 500 average yield of 1.7%.
The piece goes on to emphasize Costco's consistent upward trajectory in dividend payments over the years. Five years prior, in 2018, the quarterly dividend stood at $0.57, reflecting a remarkable 79% increase. The compounded annual growth rate (CAGR) for the dividend during this period was an impressive 12%.
Furthermore, the article touches upon Costco's history of issuing special dividends in exceptional years. In 2020, the company distributed a special dividend of $10.00 per share, providing a substantial boost to investors' overall dividend income. The author explains that these special dividends are nonrecurring and typically occur in strong financial years, serving as a way for the company to reward shareholders without committing to a permanently higher dividend that could strain its cash flow.
The author then presents a hypothetical scenario, suggesting that if Costco were to sustain a 13% annual growth rate in dividends, it would take approximately six years for the dividend to double. The article concludes by highlighting Costco's strong business performance, consistent dividend growth, and occasional special dividends, positioning the stock as a potentially underrated income investment suitable for long-term holdings.
