It's been a great year for Costco (NASDAQ:COST) shareholders. The stock is up 44% year to date, and that momentum comes as the company sees record membership renewal rates and robust same-store sales and e-commerce growth. Further, Costco announced a 14% increase to its dividend in April. 

But there could soon be more reasons for investors to cheer. There's a good chance that Costco could announce a special dividend late this year or early next year.

A dollar sign with the shadow of an arrow next to it pointing to the right.

Image source: Getty Images.

Why Costco may pay a special dividend

Costco's dividend yield of 0.9% significantly understates the company's value proposition for dividend investors. Since 2012, Costco has paid out three significant special dividends on top of its regular dividends. In 2012, Costco paid out a $7 special dividend. This was followed with $5 and $7 special dividends in 2015 and 2017, respectively. Highlighting how material these dividends are, they are much larger than the company's $0.65 quarterly dividends.

In the company's earnings calls, management has repeatedly hinted that another special dividend could be in the cards for investors. But it also said there are no guarantees. "It's certainly on the table, but there are no promises of if and when and how much," said Costco CEO Richard Galanti in the company's fiscal first-quarter earnings call last December.

For Costco's first three special dividends, they were each paid out two years and one quarter apart. While Costco didn't keep up this cadence this time around, management certainly hasn't ruled out a special dividend.

"We are always asked about questions about the special dividend, and our comments have been ... that we've done three of them," explained Galanti during the company's fiscal fourth-quarter earnings call earlier this month. 

The CEO continued:

They seem to have worked well, viewed positively. So ... it's still in our back pocket. But they are special, and so we'll have to wait and see what we decide to do in the future. But there's nothing specific that we have planned.

What Costco's special dividend could look like

The company could easily afford to pay a dividend in line with the $5 to $7 range of its previous special dividends. Currently, Costco has over $9 billion of cash, cash equivalents, and short-term investments on its balance sheet -- up from $7.3 billion in the year-ago period. In addition, the company continues to generate over $2.5 billion in trailing-12-month free cash flow yet is paying out just $1 billion annually in regular dividends.

Just as management emphasizes when it discusses its special dividend, there are no guarantees. But the signs suggest there's a good chance one will come soon. Indeed, it wouldn't be surprising to see Costco make an announcement about a special dividend as early as the next few months.