Costco Just Raised Its Dividend. It’s One More Reason to Own the Stock.

For many, Costco’s dividend is almost an afterthought. At a closing price of $591.09, the stock will yield just 0.6% annually, a mere pittance compared with, say AT&T, with its 5.7% yield. The stock market certainly shrugged: Costco stock was trading at $591.09 in after-hours trading Wednesday evening.

Costco paid its first dividend in May 2004, and has been paying one ever since. But income investors aren’t only in Costco for the regular payout. The company has a history of issuing “special dividends,” supersize payouts that come once every few years. The last was a $10 a share payout announced in November 2020; the one before came in 2017.

Mainly, though, Costco investors come for the steady gains. The stock has returned 35% over the past three years, 29% over the past five years, 22% over the past 10 years, and 17% over the past 15 years. Those returns have meaningfully surpassed the S&P 500 over all those periods.

The biggest complaint about the stock is that it’s too expensive. On April 11, the stock was trading at 42 times 2023 earnings estimates, noted Barron’s Andrew Bary, making it the most expensive retailer not named Amazon.com (AMZN). Bary, however, argues that it deserves that valuation. Membership is growing, it controls shoplifting better than its peers, and Costco continues to offer low prices to investors at a time when inflation is raising the cost of everything.

The Trader column recommended the stock on April 1, citing its ability to manage increasing wages but also the fact that it looked set to hit another all-time high. And that it did.

The next real catalyst for the stock–one way or another–might come when the company reports earnings on May 27.

Enjoy the dividend until then.

Write to Ben Levisohn at ben.levisohn@barrons.com