Over the last decade, one of the best reasons to own Costco (NASDAQ:COST) stock was the special dividends the retailer has paid out every few years.

In December 2012, the warehouse club surprised investors with a $7 special dividend per share. It was a huge gift, considering its regular quarterly dividend payments at that time were just $0.275 per share, and cost the company $3 billion, paid for with low-interest debt. In February 2015, Costco followed that up with a $5 special dividend per share, again dwarfing the $0.355 it was paying shareholders quarterly, and in May 2017, the company again offered shareholders another $7 bonus check.

A parking lot in front of a Costco

Image source: Costco.

Those payouts have been highly valuable for Costco shareholders, as they have earned more income through special dividends since 2012 than through Costco's regular payout, which yields a paltry 0.9% today even though the retailer has consistently raised it about 10% every year. As the chart below shows, investors would have significantly accelerated their returns over the last decade by reinvesting those dividends.

COST Chart

COST data by YCharts

Last year, speculation was building that Costco would again offer shareholders another special dividend. Based on the historical pattern above, investors seemed due for another payout. However, the company has consistently tamped down such expectations. In January, CEO Craig Jelinek said on CNBC that the company has no plans to pay a special dividend, though it's something the company looks at regularly, and CFO Richard Galanti made a similar statement on the earnings call last October.

It's been more than three years now since the company's last special dividend, and with the pandemic upon us, Costco's priorities have likely shifted, at least for the foreseeable future. There are a few other reasons why investors may not want to get their hopes up for another big payout.

A growing debt burden

Take a look at the chart below. Not long before the 2012 special dividend, Costco had no debt on its balance sheet. Now, after raising $4 billion in debt in April, of which $1.5 billion is to pay off existing debt, the company owes more than $7.5 billion, which factors in the $1.5 billion it recently repaid.

COST Total Long Term Debt (Quarterly) Chart

COST Total Long Term Debt (Quarterly) data by YCharts

Costco plans to use the remaining $2.5 billion it just borrowed for general corporate purposes, a sign the company is looking to secure its cash reserves during a global crisis or has other capital investment or expansion plans in mind. 

What's also telling about the chart above is that you can see the surges in the company's debt load each time it paid a special dividend. These aren't free, and much of those payouts have come from debt. While Costco's balance sheet is in tip-top shape and it's able to borrow at rock-bottom interest, under 2% in the recent lending round, management may still be mindful of running up its debt account simply to give shareholders a surprise dividend. The last one in 2017 cost $3.1 billion, and it pays out about $1.2 billion in regular dividends each year. For comparison, the company made about $3.7 billion in net income in the last four quarters.

The competitive landscape is changing

The pandemic has made e-commerce more important than ever, and it's crucial for essential retailers like Costco to be able to support their brick-and-mortar businesses with online sales. That requires investments in digital interfaces, logistics infrastructure, and omnichannel capabilities. The warehouse retailer has been more resistant to e-commerce than peers like WalmartKroger, or Target, insisting that it's in the best interests of the business for customers to come into its stores, and its no-frills model is built around that concept. However, the company has also taken steps to meet customer needs online, partnering with Instacart to offer same-day delivery for perishables, and it also made two-day delivery of non-perishables available with a $75 order minimum.

In March, the company took another step, acquiring Innovel Solutions, a provider of last-mile delivery for big and bulky products like appliances, for $1 billion. The move shows Costco getting more serious about e-commerce, as the shift online is only accelerating from the pandemic.

Costco's own e-commerce sales jumped 66% on an adjusted basis in the quarter ended May 10, and nearly doubled in June, as consumers are eager to shop online with the threat of the virus lurking.

E-commerce is still a small percentage of Costco's business, and the company may want to conserve cash to help it develop its online business or make a big acquisition to better compete with the likes of Amazon and Walmart.

The valuation is getting stretched

Costco's price-to-earnings (P/E) ratio, now near 40, is at its highest point in over a decade. The higher that valuation goes, the less of a reward the company can pay through dividends, since the dividend yield goes down as the stock price goes up. Additionally, Costco stock has nearly doubled since the last special dividend, beating its growth in a shorter amount of time than in the four-and-a-half-year period from 2012 to 2017 that encompasses its three special payouts.

In other words, though they would like it, investors don't need the reward, and it's a bad time for Costco to pay it. The company has 15 new store openings planned over the next three months, and likely has its eye on market share gains and e-commerce improvements, given the disruption from the pandemic and the opportunities it presents.

It will need money to invest in those opportunities, and management may believe it can give investors a greater return that way than simply paying out another fat check. Costco also rewarded investors with a dividend hike in April, raising its quarterly payout from $0.65 to $0.70, which seems to show it would rather return capital through conventional dividends than occasional special payouts. At a time when a lot of companies are cutting or pausing their dividends, that increase should be more than enough to keep shareholders content.